PROJECT FINANCIAL STATEMENTS 

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 Project FINANCIAL Statements

This article describes PROJECT FINANCIAL STATEMENTS used in D-E Project Accounting

Project Financial Statements in Project Accounting can be compared to Business Financial Statements of Business Accounting, because these statements stipulate always the snapshot of the current financial situation.  However, the structure of Project Financial Statements of Project Accounting is different than that of Business Accounting, and that because of the major formulas that govern both accounting systems; click here.  Reading the financial statements of Business Accounting - such as Balance Sheet, Profit/Loss Statement, and Changes in Equity - one looks for the PROFIT figure, that is obtained by comparing the previous financial year Equity with the current Equity. On the other hand, reading the financial statements of Project Accounting - as explained below - one is looking for the current overrun or under-run of the BUDGET figure, that is fixed at the project start.

The project financial statements supply the current comparison of figures covering the total project costs, and these figures are always expressed as Generics: Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, Prorates, and Contingency. Project costs shown as generic make the Project Financial Statements universal for any type of engineering project. For example, Project Financial Statements for a nuclear power plant will appear in format identical to these of an oil and gas offshore facility, or  an international airport, or any other complex engineering project. This is the great advantage of the dual-entry accounting that can ensure unification of financial statements both in business as well as in project cost engineering. 

In the D-E Project Accounting all project financial statements are generated automatically, based solely on the current status of all financial ledgers. These statements are generated usually at the end of each Project Period, and of course, at the end of the Project Itself. There are six (6) Project Financial Statements:

  1. General Financial Cost Statement
  2. Financial Statement - FORECAST versus BUDGET
  3. Financial Statement - FORECAST versus ACTUALS
  4. Financial Statement - EARNED versus PAID
  5. Financial Statement - BOOKED versus AVAILABLE
  6. Financial Statement - COMMITTED versus REQUESTED

 Today - whether in Business Accounting or in Project Accounting - all bookkeeping is done using computer software. Business Accounting has many computer programs, however, Project Accounting has so far only one, TECA, (click here). Therefore, in this article all computer program pictures belong to TECA.

Click here to display the Cost Analysis Menu screen of TECA. Notice, that there are three blocks of buttons. The left block deals with Project Financial Statements; the right block - with Project Time-Cost Statements; and the bottom block - with Work Progress Reporting and Project Cash Flow Forecast. In this article, we shall be dealing only with Project Financial Statements. Notice the button having red background, entitled FINANCIAL COST CONSOLIDATION. Clicking this button will trigger calculations and generation of the current financial statements, by TECA, lasting less than one minute. The date and time of the last consolidation is always displayed above the button.


1. GENERAL FINANCIAL COST STATEMENT shows matrix comparing Budget with Forecasts, Actuals, Bookings, Commitments, and Requests, all broken down for each Generic Cost Group, such as Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, Contingency and Prorates.

Click here for an example of the General Financial Cost Statement, belonging to the project SOFP - Safanya Offshore Facilities - Stage #3. The statement shows the budget of 920,160,100 SR (Saudi Rials), marked as 100%. The Project appears to be 51.71% advanced, as indicated by Actuals. By comparing Bookings (50.07%) with Commitments (50.23%), we may conclude that  some money must be supplied soon to the Project, because the difference ("available cash") is 0.16%, equal to only 1,438,158 SR.


2. FORECAST versus BUDGET statement shows for the comparison of Forecasts with Budget only, broken down for each Generic Cost, such as Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, and Prorates.

Click here for an example of this financial statement, belonging to the project SOFP - Safanya Offshore Facilities - Stage #3. The statement shows that presently there is the 6.61% capital reserve, amounting to 60,832,900 SR, where the Contingency alone (not used so far) amounts to 55,380,000. This shows that this project budget is not overrun, that is a positive assessment of the financial status of this Project.


3. FORECAST versus ACTUALS statement shows for the comparison of Forecasts with Actuals only, broken down for each Generic Cost, such as Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, and Prorates.

Click here for an example of this financial statement, belonging to the project SOFP - Safanya Offshore Facilities - Stage #3. The statement shows the balance of 383,474,110 SR, indicating that the current financial progress of this project can be considered (based on Earned Value / Earned Work assumptions) as 55.38% completed.


4. EARNED versus PAID statement shows for the comparison of Earned (Actuals) with Paid (Bookings), broken down for each Generic Cost, such as Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, and Prorates.

Click here for an example of this financial statement, belonging to the project SOFP - Safanya Offshore Facilities - Stage #3. The statement shows that the sum of all bills already paid amounts to 460,761,843 SR, that is still 15,091,247 SR less than the reported total Earned Work of 475,853,090 SR, which is a positive factor. Moreover, the high balance figure of 96.83% shows that all bills were paid rather promptly.


5. BOOKED versus AVAILABLE statement shows for the comparison of Booked (Bookings) with Available (Commitments), broken down for each Generic Cost, such as Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, and Prorates.

Click here for an example of this financial statement, belonging to the project SOFP - Safanya Offshore Facilities - Stage #3. The statement shows that the sum of all bills already paid amounts to 460,761,843 SR (the same figure as that in Statement #4 above), and that the amount of money already supplied is 462,200,001 SR. It is evident that there is a great surplus (43.4%) in  Engineering-Direct, and the shortage of 13.71% (33,029,242 SR) in Materials-Direct. Fortunately, the overall balance of 1,438,158 SR is positive (but only 0.31% of the so far booked money), and it represents the only money left presently for future payments. This means that this Project definitively needs some additional cash inflow pretty soon.


6. COMMITTED versus REQUESTED statement shows for the comparison of Committed (Commitments) with Requested (Forecasts), broken down for each Generic Cost, such as Construction-Direct, Construction-Indirect, Materials-Direct, Materials-Indirect, Engineering-Direct, Engineering-indirect, Prorates and Contingency.

Click here for an example of this financial statement, belonging to the project SOFP - Safanya Offshore Facilities - Stage #3. The statement shows that 859,327,200 SR was requested, but so far only 462,200,001 SR (53.79%) was supplied by the Project Sponsors. This means that as much as 397,127,199 SR must still be furnished in the future to satisfy financing of this Project. Generally, 53.45% was already allocated equally to each Generic Account Group, except for Prorates that received as much 93.22% of the funds already.  As the Contingency had not been utilized, there was no request for it to cover. The Cost Engineer needs to make some adjustment to the funds (via an entry into Commitment Journal) to take care for the unbalances shown in the Statement #5 above.   



Remarks

        The dual-entry computerized method of Project Accounting allows for creating project cost financial statements easily, without any need on part of the Cost Engineer to do any data retrieval and calculations. On the other hand, using the single entry accounting method, his task of creating such statements would be enormous. The conversion of all project costs to generic costs, extraction of financial data from the Accounting Department, plus creation of the statements would require involvement of more than one person, and also many man-hours to spend. In comparison, using the D-E Accounting program TECA, the Cost Engineer can create all project financial statements and print reports in the matter of minutes, knowing also that his presented data are 100% correct.

         The financial statements of D-E Project Accounting should convince you about the righteousness of applying the dual-entry accounting method to Project Cost Planning and Control.


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