JOURNALS in D-E Project Accounting 

Home Page 


 Journals in D-E Project Accounting

This article describes the four (4) JOURNALS used in D-E Project Accounting

JOURNALS - the powerful features of Dual-Entry Accounting - allow for accumulating project cost data in chronological order and for posting into LEDGERS, where the automatically sorted data enables creating  multitude of current reports.  Journals - well known and used by Accountants for over 500 years - are still something rather new to many Cost Engineers today. Using journals, the Cost Engineer can organize superbly his data maintenance job, saving  a lot of his time otherwise needed to keep the cost records in separate worksheets.  By implementing the basic equation that governs Project Cost Planning and Control (click here), Project Accounting utilizes many features of Business Accounting, where Journals are the major instruments for data input. 

 In Project Accounting there are four (4) Journals: FORECASTS, EXPENSES, BOOKINGS, and COMMITMENTS. The structure of each journal is practically identical. However, the data contents entered and kept in the journals have different contents, depending on type of the journal. Click here to see the Project Accounting Network, showing the relationship betweens Data Sources, Journals and Accounts. The journal concept is simple: the sum of DEBIT must be equal the sum of CREDIT in every Journal Entry. Advantages resulting from using the D-E Project Accounting are great: click here

The days when bookkeeping was done using pen and paper are gone. Today - whether in Business Accounting or in Project Accounting - all bookkeeping is done using computer software. There are many computer programs for Business Accounting, but in Project Accounting there is so far only one (click here); hence, in our articles, all illustrations refer to TECA.  In Project Accounting the allocation of dollar figures to either DEBIT or CREDIT column is much simpler than that done in Business Accounting. Namely, TECA can automatically store Accounts in retrieval combos and also allocate the right Account Types into the Debit or Credit columns, preventing from user making any wrong account type data entry, as well as from posting unbalanced data.  

Every Journal comprises many Journal Entries, where each Journal Entry (click here) consists of two parts: Header and Body.

 The Header part comprises one record line:

  • Journal ID
  • Journal Type
  • Journal Entry Date
  • Journal Entry Title
  • Posting date and time

The Body Part may comprise of any number of Cost Entries (equivalent to Transactions in Business Accounting), where each Cost Entry consists of:

  • Account number
  • Account Type
  • Account Name
  • Cost Entry details
  • Debit amount (US$)
  • Credit amount (US$)
  • Posting date and time

            Explanations of each journal type are displayed below.


FORECAST JOURNAL 

Journal Type

DEBIT Column Name 

CREDIT Column Name

DEBIT data goes to:

CREDIT data goes to:

FORECAST

Forecast [C]

Request [F]

Cost Account

Commitment Account

 Forecast Journal contains the whole contents of the original Budget, that comprises Project Cost Estimate, Contingency and Prorates, plus all Change Orders that modify the originally estimated project cost. These Project Costs, expressed always in whole dollar figures, are entered into the DEBIT column, marked as ‘FORECAST’, and the sum of Debit figures is offset by charges made to corresponding Generic Commitment Accounts, in the CREDIT column, marked ‘REQUEST’.

            There are two kinds of Forecast Journal Entries:

Journal Entry of the Initial Cost Estimate - one entry only. Because of very large volume of data, comprising the whole Project Cost Estimate, it is recommended to use the Batch Method of Data Entry (click here), that automatically generates also the Code of Accounts.

Journal Entry of Change Order - many entries. Click here for an example of one Forecast Journal Entry, comprising the Change Order #23, where on the DEBIT site, marked as ‘FORECAST’, all project costs of this Change Order are visible. These Debit costs - comprising additional construction work, materials, and engineering in the total amount of $104,960 - are balanced by charges made to corresponding (by CLASS) Generic Commitment Accounts (Construction-Direct = $45,600, Materials-Direct = $46,840, and Engineering-Direct = $12,000), placed on the CREDIT site, marked as ‘REQUEST’.


EXPENSE JOURNAL 

Journal Type

DEBIT Column Name 

CREDIT Column Name

DEBIT data goes to:

CREDIT data goes to:

EXPENSE

Earned [E]

Actuals [C]

Expense Account

Cost Account

 Expense Journal contains data related to the work progress, expressed by some percentage of the incremental EARNED VALUE or by the equivalent dollar figure, i.e. EARNED WORK. In case of complex engineering projects, the figures of EARNED VALUE and EARNED WORK shall be the Global Earned Value and Global Earned Work figures, obtained from the corresponding Global WBS Account; (to be explained in our next E-mail Article).  

Whenever the work progress refers to CONSTRUCTION or ENGINEERING, the progress is almost always defined by the EARNED VALUE increment, being the percentage of the work done during the reporting period, and also automatically identified by the Journal Entry Date. However, sometimes in case of ENGINEERING, the scheduled monthly payroll and other costs, expressed in dollars, can be assumed as the EARNED WORK.  Whenever the work progress refers to MATERIALS, the dollar values of issued purchase orders or similar expense documents (not yet paid) are assumed to be the EARNED WORK. These progress values are entered into the CREDIT column, marked as 'ACTUALS'. They are offset by the sum of dollars, entered into the DEBIT column marked as 'EARNED', referring to accounts of involved Project Participants, i.e. contractors, suppliers or engineering firms, responsible for the indicated work progress shown in the CREDIT column. The amount of dollars appearing in the DEBIT column should entitle these Participants for claiming equivalent payments, expressed by their future invoices for the work done.

     Click here for an example of one Expense Journal Entry.  Here, the choice of accounts in the combos, as well as the criteria for data entry into the proper columns, are automatically controlled by TECA. Based on the progress report for 'construction', three ( 3) objects are credited (Class C3d), and the corresponding three (3) Contractors (Class E3d) debited.  Based on the issued purchase orders for 'materials', three (3) project objects are credited, and three (3) corresponding Suppliers debited. Based on the purchase order ENG-45, the account "On Site Engineering" (Class C1d) is credited, and the corresponding engineering firm Zahang Guanhua (Class E1d) debited with the amount of $346,970. Once posted, clicking the button 'SHOW' displays the Expense Account of the affected Project Participant.


BOOKING JOURNAL 

Journal Type

DEBIT Column Name 

CREDIT Column Name

DEBIT data goes to:

CREDIT data goes to:

BOOKING

Booked [B]

Paid [E]

Booking Account

Expense Account

 Booking Journal contains data related to payments made to the Project Participants, i.e. contractors, suppliers, engineering firms, and any other business or private entities that supply materials or services to the Project. Account ID of the Project Participant and his invoice number - and optionally also the check number and date of payments - identify the payment, value of which shall be entered into the CREDIT column, marked as 'PAID'. The sum of dollars in the Credit Columns is offset by charges made to the Generic Commitment Accounts, in the DEBIT column, marked as 'BOOKED'.  Every Generic Booking Account defined with some Class (e.g. B3d) must contain the sum of the Participant Accounts of the same Class (e.g. E3d). This arrangement is required by the rules of the Dual-Entry methodology used in Project Accounting, where the costs must be shared between the corresponding Project Accounts and the Generic Accounts according to their classes.  TECA makes this procedure of proper cost allocations very easy, by clicking one button.

Click here for an example of one Booking Journal Entry for Period #3. Here the dollar values pertaining to three (3) invoices of Contractors (Class E3d, Construction-Direct = $16,163,596), and three (3) invoices of Suppliers (Class E2d, Materials-Direct = $2,435,670), and two (2) invoices of Engineering Firm (Class E1d, Engineering-Direct $9,800,000) - appear in the CREDIT Column, and are offset by the sum of theses dollar values, entered into the DEBIT Column of corresponding Generic Booking Accounts having the corresponding classes ‘B3d’, 'B2d', and 'B1d').


COMMITMENT JOURNAL 

Journal Type

DEBIT Column Name 

CREDIT Column Name

DEBIT data goes to:

CREDIT data goes to:

COMMITMENT

Committed [F]

Available [B]

Commitment Account

Booking Account

Commitment Journal contains data related to the Funds provided to the Project by Project Sponsors. Each fund shall be identified by Project Sponsor’s name, by fund supply date, and by another unique ID as may be needed. This information shall be entered into the Title and the Comment data fields of the Journal Entry.

The dollar value of the Fund is always distributed between two groups of Generic Accounts: Booking Generic Accounts, and Commitment Generic Accounts. This distribution is done automatically, by the TECA program, in the same proportion as that of the current Generic Account Distribution that exists already in the Current BUDGET; (to be explained in one of our future e-mail articles).

            The Dual-Entry Project Accounting rules require this type of the fund distribution in order to keep the accounting logic in balance. Namely, after posting, the dollar figures shown in the DEBIT column, marked as 'COMMITTED', appear as the money already committed for disbursement. The dollar figures shown in the CREDIT column, marked as 'AVAILABLE', are offsetting the money requested by the estimates and change orders, already recorded in the Forecast Journal.

 Click here for an example of one Commitment Journal Entry. Here, the dollar value of the Fund amounting to $160,000,000 is distributed among eight (8) Generic Accounts, both in the DEBIT Column marked as 'COMMITTED', and also on the CREDIT column marked as 'AVAILABLE'. The distribution is made proportional to the distribution of the Generic Values appearing on the current BUDGET. Once posted, clicking the button 'SHOW' displays the related Generic Account's screen. In the TECA program, the fund distribution procedure is fully automatic, and it can be done in the matter of seconds, by clicking two buttons.


NOTES about Journal Bookkeeping 

In the Business Accounting - that utilizes specifically defined debit and credit accounts, occasionally accountants still make mistakes by entering data into the wrong column, e.g. Debit instead of Credit. There Assets and Expenses belong to the Debit Accounts, whereas Liabilities, Equities and Incomes – to the Credit Accounts. Therefore in the Business Accounting it is rather easy to make wrong column data entry.  In contrary, in the Project Accounting where the Debit and Credit columns are clearly labeled, making wrong column entry may be easily prevented. Furthermore, the computer software can provide an automatic restriction for the choice of account types as well as for the dollar data entry into any of the columns (DEBIT or CREDIT) in every journal.  Click here to see the comparison between Business Accounting and Project Accounting.

        ‘Posting’ means that after the User has entered data into the journal, he clicks the POSTING button (marked 'POST'), what makes the data being instantly transferred into ledger accounts of such accounts that are then listed. At the same time, the data displayed on the journal screen are protected, making any subsequent editing impossible.  When the User must revise any existing journal data, he clicks the POSTING button (marked 'UNPOST'), what makes the data un-posted and cleared from the affected ledgers, allowing for editing.  This easy procedure of revising journal data is generally not available in the Business Accounting. There to correct any changes to already posted transactions, the Accountant must make corrective entries, called Reverse Journal Entries. In contrary to the Business Accounting, this feature of instant posting and un-posting, available in TECA, makes the journal data entry job easy, and also saves time for the person who does the data entry job.

        The posting procedure is fully automatic, without any need for the User to make any calculations. What he must watch, however, is that the sum of Debits is always equal the sum of Credits in each Journal Entry. Should the User overlook the required zero balance and try to post the Entry, TECA program flags automatically any unbalance and prevents from posting. To correct any error, the User can simply click 'UNPOST', overtype the wrong data, and click 'POST' anew.

   


Up Page

Hit Counter