Glossary
Project accounting
Project accounting is the practice of tracking revenues, costs, and profitability at the individual project level rather than just at the company level. For agencies and professional services firms, it is the foundation of understanding which clients, project types, and service lines are actually profitable. Without project accounting, the overall P&L can look healthy while individual projects quietly destroy margin.
What project accounting tracks
Project accounting captures three main categories of data: revenue (the fees invoiced or to be invoiced for the project), direct costs (the labour and expenses directly attributable to delivery), and the resulting gross margin per project.
In agencies, the primary direct cost is almost always labour: the salary time of the people working on the project. This is usually calculated from time tracking data, with each logged hour valued at the employee's cost rate.
Project accounting vs company accounting
Traditional company accounting tracks money in and out of the business as a whole. Project accounting disaggregates that view to show how each project contributes to the overall result. The sum of all project gross margins, minus overhead, equals the company's net profit.
Agencies with ten similar-looking projects can have enormous variation in profitability across them. Some might be at 55% gross margin; others might be losing money. Without project accounting, those differences are invisible.
Percentage of completion and revenue recognition
For longer projects, project accounting needs to handle revenue recognition. Revenue is typically recognised on a percentage-of-completion basis: if a project is 60% complete, 60% of the total project revenue is recognised in the current period, regardless of when invoices are issued. This gives a more accurate view of project-level performance in any given accounting period.
Example
An agency runs 12 active projects. Overall revenue looks strong. But when the finance lead reviews project accounting data, she finds three projects are running at negative gross margin because of scope overruns and uncontrolled subcontractor costs. Without project-level accounting, those losses would be hidden within the overall revenue figure until the end of the quarter.