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Project Accounting Steven M Project Accounting Steven M. Bragg CPE Edition Distributed by The CPE Store www.cpestore.com 1-800-910-2755 Project Accounting Steven M. Bragg Copyright © 2014 by AccountingTools, Inc. All rights reserved. Course and chapter learning objectives copyright © The CPE Store, Inc. Published and distributed by The CPE Store, Inc. www.cpestore.com. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to Steven M. Bragg, 6727 E. Fremont Place, Centennial, CO 80112. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Printed in the United States of America Course Information Course Title: Project Accounting Learning Objectives: Identify project characteristics Recognize the aspects of a project that cost plus pricing adds a markup percentage to Determine when the cost-to-cost method can yield incorrect profit recognition Discern why the fee for a performance bond is considered a direct cost Determine what happens to the cost to obtain a contract when it is capitalized Recognize when to use an allowance in a project accounting environment Determine when, and under what circumstances, to discontinue capitalizing interest Recognize when/why, under a dependent completion scenario, you should terminate interest capitalization Identify which stage of internal-use software development can be capitalized Recognize what costs can be charged to expense when developing a website, rather than being capitalized Ascertain why the establishment of cost definitions is needed Determine why documentation of the percentage of completion method is necessary Recognize an item for which a progress measurement may be included in a project monitoring plan Identify what factors should be used to calculate the breakeven point of a project Recognize how to calculate free cash flow Subject Area: Accounting Prerequisites: None Program Level: Overview Program Content: Project Accounting describes the role of the accountant in designing a cost collection system for a project, charging expenses to it, and measuring the amount of revenue to be recognized. The course also addresses the management of change orders, allowances, and contingencies, while noting the impact of GAAP requirements on specific project issues, including interest capitalization and the treatment of research and development costs. The controls and measurements used for projects are also discussed. Advance Preparation: None Recommended CPE Credit: 3 hours Table of Contents Chapter 1 – Overview of Project Accounting ....................................................................................... 1 Learning Objectives ............................................................................................................................. 1 Introduction.......................................................................................................................................... 1 The Project .......................................................................................................................................... 1 The Project Accountant ........................................................................................................................ 2 Summary ............................................................................................................................................. 4 Review Questions ................................................................................................................................ 5 Review Answers .................................................................................................................................. 6 Chapter 2 – Project Pricing, Billing and Revenue ................................................................................ 7 Learning Objectives ............................................................................................................................. 7 Introduction.......................................................................................................................................... 7 Project Pricing Methodologies .............................................................................................................. 7 Cost Plus Pricing ............................................................................................................................. 7 Fixed Fee Pricing ............................................................................................................................. 8 Contractual Modifiers ....................................................................................................................... 8 Progress Billings .................................................................................................................................. 9 Project Revenue Recognition ............................................................................................................. 10 Output Methods ............................................................................................................................. 10 Input Methods ................................................................................................................................ 10 Change in Estimate........................................................................................................................ 11 Progress Measurement .................................................................................................................. 11 Percentage of Completion Method ..................................................................................................... 12 Completed Contract Method .............................................................................................................. 13 Contract Modifications ....................................................................................................................... 14 Treatment as Separate Contract .................................................................................................... 14 Treatment as Continuing Contract .................................................................................................. 14 Entitlement to Payment ...................................................................................................................... 15 Measurement of Progress Completion ............................................................................................... 16 Summary ........................................................................................................................................... 16 Review Questions .............................................................................................................................. 18 Review Answers ................................................................................................................................ 19 Chapter 3 – Project Costs ................................................................................................................... 20 Learning Objectives ........................................................................................................................... 20 Introduction........................................................................................................................................ 20 Project Costs ..................................................................................................................................... 20 Direct Costs ................................................................................................................................... 20 Overhead Costs ............................................................................................................................. 21 Capitalized Interest ........................................................................................................................ 21 Costs to Obtain a Contract ................................................................................................................. 21 Information Organization and Presentation ........................................................................................ 22 Information Recordation ..................................................................................................................... 23 Separate Spreadsheet ................................................................................................................... 23 Separate General Ledger / Subledger Accounts ............................................................................
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