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D-E Accounting at Project in Progress, Early Stage


D-E Accounting at Project in Progress, Early Stage

This article describes how to execute D-E Accounting when the Project is in progress.

            In the D-E Project Accounting, there are three distinct stages:  Project Initiation, Project in Progress, and Project Completed. This article will explain the second stage: PROJECT IN PROGRESS.

            In this Stage, the Cost Engineer depends on the data furnished to him by the Project Engineer, the Field Engineer, the Procurement Engineer, the Project Accountant, and the Project Manager.

            During each Project Period, the Cost Engineer needs to execute the following tasks:

  1. Enter Project Progress data into Expense Journal
  2. Enter Change Order data into the Forecast Journal
  3. Enter Project Billing data into the Booking Journal
  4. Enter data about Project Funding into the Commitment Journal
  5. Handle Petty Cash for Project Team Members, if applicable

   At the end of each Project Period, the Cost Engineer needs to generate and to publish the following reports:

  1. Current Work Progress Cost Report
  2. Current Project Financial Report
  3. Current Participant Ledger Summary Report
  4. Current Project Time-Cost Report

In this article, we assume, that the Cost Engineer is using TECA, the project accounting computer program that is an integral part of the already published book. To illustrate the above tasks, this article refers to the very simple project, the Oklahoma Transit Gas Pipeline, having estimated cost of US$ 154 millions, and duration of 16 months. It is the same project, examples of which were used in our previous E-mail Article #10.

            Data about the current progress of the Project arrive from several  sources:

            In this article, we review the bookkeeping and reporting done during and at the end of the first Project Period #1 only. In the next Article #12, we will evaluate the Project when well advanced, i.e. at the end of the Project Period #13. Finally, in the E-mail Article #13, we will review the same Project at the completion.


1. Enter Project Progress data into the Expense Journal

            Progress reports have been submitted by the Field Engineer, the Procurement Engineer, and the Project Engineer, and now the Cost Engineer makes entries into the Expense Journal; click here to see the journal entry screen.

            For CONSTRUCTION, the Filed Engineer has defined the work progress by the reported Earned Value, expressed as percentage of the advanced work of each Project Object (i.e. Project Cost Account).  For MATERIALS, the work progress has been defined by the value of the issued Purchase Orders, representing the Earned Work. As you know, Earned Work (click here for explanations) is equivalent to Earned Value multiplied by Forecasted Cost.  For ENGINEERING, the work progress has been defined by the dollar value of the scheduled work, representing the Earned Work. As you can see, the work progress (i.e. EARNED =ACTUALS) for Period #1 was worth $7,334,830.

            The D-E Accounting requires to offset the total CREDIT of $7,334,830 by the equivalent DEBIT figures. These DEBIT figures must refer to such Project Participants who are responsible for the stipulated work done during this reporting Project Period. The Cost Engineer identified six Project Participants - Contractors, Suppliers and Engineering Firms - and debited them accordingly; click here to see the updated journal entry screen. Subsequently, the Cost Engineer posted the entry and generated the Expense Journal Entry Report; click here to see the report. Our e-mail Article #3 explained also how to make journal entries into the Expense Journal.


2. Enter Change Order Data data into the Forecast Journal

            There was only one Change Order issued during the Project Period #1, and it increased the total Project Forecast for $872,000, affecting CONSTRUCTION, MATERIALS and ENGINEERING. The Cost Engineer made the entry into the Forecast Journal. Click here to see the journal entry screen, and scroll down to see the related Forecast Journal Entry Report. Our e-mail Article #3 explained also how to make journal entries into the Forecast Journal.


3. Enter Project Billing Data data into the Booking Journal

            Following the project contract, the Project Manager advised formally the Accounting Department to pay some Contractors the contract-stipulated advances in the total amount of $2,650,000. The Cost engineer has made the appropriate entries into the Booking Journal. Click here to see the journal entry screen, and scroll down to see the related Booking Journal Entry Report. In this Project Period #1, there were no invoices submitted by any one of the Project Participants. Our e-mail Article #3 explained also how to make journal entries into the Booking Journal.


4. Enter data about Project Funding into the Commitment Journal

            The Project Manager advised the Cost Engineer and handed over to him the copy of the latest bank statement, showing that the Project Participants deposited the amount of $55,000,000, to be recognized as the first project funding. The Cost engineer has made the appropriate entries into the Commitment Journal. Click here to see the journal entry screen, and scroll down to see the related Commitment Journal Entry Report. Our e-mail Article #3 explained how to make journal entries into the Commitment Journal. The entry is extremely simple (entering the amount and clicking one button), because the cost distribution between the Generic Accounts is made automatically by the program, proportionally to the distribution of Generic Accounts in the Project Budget. 


5. Handle Petty Cash for Project Team Members, if applicable

            Very often on large and long duration projects, the Cost Engineer is responsible for accounting of the Project Petty Cash. He needs to maintain accounts of project team members regarding their expense claims, refunds, and money advances. In this article, we will not deal with this subject. However, the TECA computer program, attached to the book, has the special accounting section, called "Auxiliaries", that facilitates handling of Project Petty Cash.


6. Current Work Progress Cost Report

            At the end of each Project Period, the Cost Engineer shall prepare and issue the Work Progress Report. This report shows the current progress of every Project Object (i.e. Project Cost Account). The report can be generated, simply by clicking one button, but only after the Consolidation Procedure (already explained in our e-mail Article #8) has been executed.

            Click here to display the Work Progress Report, related to the pipeline project, showing the progress status at the end of the Project Period #1, and scroll the screen down to see the program screen from which this report was generated. Prior to generating, the Cost Engineer has entered into the program screen some general comments that appear as the General Notes in the report.


7. Current Project Financial Report

           At the end of each Project Period, the Cost Engineer shall prepare and issue the Project Financial Report. This report shows the financial status of the Project at the indicated date, being the last working day of the current Project Period. Generating this report has been already explained in our e-mail Article #7.

            Click here to display the Work Project Financial Report, related to the pipeline project, showing the financial status at the end of the Project Period #1. This report shows that the Project if financially 4.51% advanced (as per ACTUALS), with payments consisting of 1.63% (as per BOOKINGS), and the project fund supplied of 33.85% (as per COMMITMENTS).


8. Current Participant Ledger Summary Report

            At the end of each Project Period, the Cost Engineer shall prepare and issue the Participant Ledger Summary Report. This report shows the financial status of the accounts of all Project Participant - i.e. Contractors, Suppliers, and Engineering Firms - at the indicated date, being the last working day of the current Project Period. Generating this report was already explained in our e-mail Article #7.

            Click here to display the Participant Ledger Report, related to the pipeline project, showing the financial status at the end of the Project Period #1. This report shows the money of $2,650,000 already paid to the three firms, as well as the value of their work, or materials ordered, or services supplied, as assessed by Earned Values and Earned Work through the current progress reports. Click here to see the program screen that shows financial status of all Expense Accounts related to the pipeline project.


9. Current Project Time-Cost Report

            At the end of each Project Period, the Cost Engineer shall prepare and issue the Project Time-Cost Report. This report shows the time-cost status of the Project, showing the relationship between BUDGET, FORECASTS, ACTUALS, BOOKINGS, and COMMITMENTS, all within the time frame of the Project, and at the last working day of the current Project Period. Generating this report was already explained in our e-mail Article #8.

            Click here to display the Project Time-Cost Report, related to the pipeline project, showing the time-cost status at the end of the Project Period #1. This report comprises the tabular part, showing the relationship between FORECASTS and ACTUALS. Scroll the screen down, to see related the Histogram and S-Curves, now comprising BUDGET, FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS distributed in the time frame of the Project. As you can see, there are very little work activity so far, as evident when looking on the S-Curve of ACTUALS (red line). Moreover, the cash supplied by the Project Sponsors so far should suffice till the Project Period #4, as evident when looking on the S-Curve of COMMITMENTS (blue line). 



Remarks

        D-E Project Accounting, through the above listed nine (9) tasks, allows the Cost Engineer to keep track on the project costs and to report about the project costs swiftly and in the well organized way.  In this stage, the Cost Engineer is expected to maintain the four journals, to take care for the Petty Cash, if applicable. Moreover, at the end of each Project Period, he has to generate several project cost reports to be presented to the Top Management as well as to the Project Sponsors. He is supplied with the project progress information by the Field Engineer, Procurement Engineer, Project Engineer, Project Accountant, and Project Manager.

         The high quality of the project cost progress reporting, obtained with minimum of efforts on part of the Cost Engineer, should convince you to apply the dual-entry accounting method in your projects too.      


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