Project Accounting Basics
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Transcript of Project Accounting Basics
Once we understand the basic terminologies of PA it would be easier to move ahead with the process.
Project: A project is a primary unit of work that can be broken down into one or more
tasks.
Task: It is the small unit of work created under the project against which transaction
can be created.
Note: we cannot create transaction/expenditure items directly on the project, hence it is
mandatory for each project to have at least one task.
Project Classes:
Oracle PA has provided three pre defined project classes.
Indirect projects – Track overhead activities and costs of the organization. Note:
Does not generate revenue and invoicing process.
Capital projects – Track asset development activities and costs, and costs are
capitalized as one or more assets.
Contract projects - Contract projects created with external customer to track
cost, revenue, and billing.
Project Type:
The project type controls how Oracle Project Foundation creates and processes
projects, and is a primary classification for the projects your business manages. You
must set up at least one project type to create projects. You must set up project types
for each operating unit.
Examples of Indirect project: Admin Project, Transport Facility etc.
Example of Contract project: External Project, Intercompany project etc.
Expenditure category: It is the category created to classify the different types of cost
an organization may incur.
Revenue category: It is the category created to classify the different types of
revenue an organization may earn.
Expenditure type:It is the identification of cost that is associated to an
expenditure item.It is assigned to the expenditure category and revenue category
during the setups.
Expenditure class: It is the classification for an expenditure type as how the
expenditure type can be used to create transaction. When an expenditure type is
classified for a certain type then only those expenditure class transactions are allowed
to enter.
In Oracle Project Costing we have predefined expenditure classes.
Labor:
Straight Time: For standard time entry. We use the cost rate multiple with number of
hours.
Overtime: Labor cost calculated using a premium cost rate multiplied by hours.
Non-labor project costs:
Expense Reports – Expense reports from Oracle Payables or Oracle Internet
Expenses. You cannot enter expense reports directly into Oracle Project Costing.
Expense reports that you import into Oracle Project Costing must be fully accounted
prior to import.
Usages – You must specify the non-labor resource for every usage item you charge to
a project. For each expenditure type classified by a Usage expenditure type class, you
also define non-labor resources and organizations that own each non-labor resource.
Supplier Invoices – Supplier invoices, discounts, and payments from Oracle Payables
or an external system, and receipt accruals from Oracle Purchasing.
Miscellaneous Transaction – Miscellaneous Transactions are used to track
miscellaneous project costs. Examples of uses for miscellaneous transactions are:
Fixed assets depreciation
Allocations
Interest charges
Burden Transaction – Burden transactions track burden costs that are calculated in an
external system or calculated by Oracle Project Costing as separate, summarized
transactions. These costs are created as a separate expenditure item that has a
burdened cost amount, but has a quantity and raw cost value of zero. You can adjust
burden transactions that are not system-generated.
Work In Process – You use this expenditure type class for Oracle Project
Manufacturing WIP transactions that you interface from Manufacturing to Oracle
Project Costing. You can also use this expenditure type class when you import other
manufacturing costs via Transaction Import or when you enter transactions via pre-
approved batch entry.
Inventory – This expenditure type class is used for the following transactions:
Oracle Project Manufacturing transactions that you import from Manufacturing or
Oracle Inventory.
Oracle Inventory Issues and Receipts that you import from Oracle Inventory in a
manufacturing or non-manufacturing installation.
Example:
Sr No
Expenditur
e Category
Revenue
category
Expenditure
type Expenditure Class
1 Labor Time Labor Revenue Standard_Time Straight Time
2
Vendor
Cost
Service
Revenue Supplier_cost Supplier Invoices
3 Travel Cost Travel Revenue Travel Cost
Expense Report & Supplier
Invoices
4 Misc Cost Misc Revenue
Misc_Transacti
ons Miscellaneous and usages
In the above examples for line number 1, time can be entered for expenditure type
“Standard_Time”.
Similarly for line number 2 & 4 the respective expenditure class transactions can be
entered.
For line number 3 supplier invoices & expense reports can be entered as it has been
classified for two different classes.
Types of Currencies
Transaction amounts are stored in the following currencies:
Transaction Currency:The currency in which a project transaction occurs.
Expenditure Functional Currency: The functional currency of the expenditure
operating unit.
Project Functional Currency: The functional currency of the operating unit that
owns the project.
Project Currency: The user–defined project currency.
When you enter transactions in a currency that is different from functional currency or
project currency, Oracle Project Costing must convert the transaction amount to the
functional and project currencies. To convert transaction currencies, Oracle Project
Costing must first determine the exchange rate type and exchange rate date.
Task Type:
Billable Item: It is a functionality associated at the task level identifying the
expenditure items created against the task to be billed to the client.
Non Billable Item: It is functionality associated at the task level identifying the
expenditure items created on the task is only to record the cost incurred against
it.
Note: We can adjust the task at the expenditure item window to make the non billable
as billable and vice versa. This is called as expenditure item adjustments.
Employee/Job bill rate Override: Incase a different rate needs to be updated for a
particular job or employee the same can be updated at the project or task level.
The employee name needs to be entered along with the bill rate, currency and period
applicable. The rate at the task level overwrites the rates at the project level and the
rates at the project level overwrites the rate of the bill rate schedule attached at the
project level.
Cost rate: It is the rate defined at the job or employee level to derive at the basic cost
for a particular expenditure item. The cost rate scheduled are defined in the OU
functional currency.
The cost rate can be defined at two levels:
In the setups -> Expenditure -> Rate schedule.
Overrides: Labor Costing Overrides
( Navigation: PA Responsibility->Setup->Costing->Labor->Labor Costing Overrides.)
Bill rate: It is the rate defined at the job or employee level to derive at an amount
which will be billed to the client.
The bill rate can be defined at two levels:
1. In the setups -> Expenditure -> Rate schedule.
2. Overrides: At the project level as employee or job override.
For employee override: Navigation: Project -> Options -> – Bill Rates and
Discount Overrides -> Employee Bill Rate and Discount Overrides
For job override: Navigation: Project -> Options -> Bill Rates and Discount
Overrides -> Job Bill Rate and Discount Overrides
Transfer Price Rules and Schedule: Transfer price rules control the calculation of
transfer prices for labor and non-labor cross charged transactions. To drive transfer
price calculation for cross charge transactions between the provider and receiver, use
the Transfer Price Schedule window to assign labor or non-labor (or both) transfer
price rules to the provider and receiver pair on a schedule line
ICB: It is a process, where we have different legal entities involved, and the OUs under
these LE owns the employees and projects.
The OU to which the employee is assigned is called PROVIDER OU.
The OU to which owns the project is called RECEIVER OU.
Note: In ICB process, an internal invoice is generated in provider OU.
Borrowed And Lent: It is a process, where we have one legal entity involved, and the
OUs under the LE owns the employees and projects. The employee and project can be
in the same OU or different OU but the LE has to be same.
Note: No internal invoice is generated in B&L process, only accounting happens to post
cost.
Labor: When an employee enters time on a specific project it is known as charging
efforts of the employee on the project for a given time frame. This time further has
some cost defined to calculate the actual cost incurred by the employees on the
project.
The calculation process of the raw cost for such labor/time entered is called as Labor
Cost.
The time can be entered via a third party tool or via the PA pre approved batch.
Overtime – Labor cost calculated using a premium cost rate multiplied by hours.
Non labor expenditure types: The expenditure items created via supplier invoices
or expense reports are called as non labor expenditure types. The expenditure types
created need to be added in the non labor expenditure schedules.
Navigation: PA -> Setups -> Expenditure -> Rate schedule.
Oracle Projects is very useful for any Project Based Organizations. In today’s world i can say all he
organizations are based on Projects for ease of maintenance and tracking.
What is Project Costing ?
To put it in a simpler manner, module to calculate the cost and account it. In any organization there
should be an application which keeps track of the costs of the projects and categorize the costs. I
can say Project Costing is similar to one of the applications, but not limited to calculating and
accounting. I will explain in detail in the coming posts, how cost is calculated and accounted in
Oracle Projects Costing.
What is Project Billing ?
Lets take an example of Services Company. Any Services company has customers whom they
serve and inturn bill the clients for the service offered. In such scenarios Project Billing is handful in
billing the customer. Not only that you can calculate revenue for the projects, which is very
important. In detail explanation will be in my future posts.
What is Project Foundation ? Project Foundation provides the basic infrastructure and components
for the Costing and Billing to work. So what it means ? For Costing and Billing to work we need basic
infrastructure /components like Projects, Tasks, WBS(Work Break Down Structure) etc, Cost Rate
Schedules, Bill Rate Schedules.These structures are created using Project Foundation APIs and
hence the name ‘Foundation’.
What is Project Management ?
Offcourse the name itself explains that it is to manage the projects. The functions involve Project
Tracking, Performance Tracking and other standard project management functions.
What is Project Resource Management ?
This is for manging the resources of the project. Functions involve assigning resources, moving
resources /deallocating resources, competency management , creation of vacancies, advertising the
vacancies, evaluating the skills of the resources etc.
For more info: see the Oracle Projects Fundamentals User guide.