Managing travel expenses for project Accounting?
As a project accountant for a small company (under $30 million), I’ve been handling travel expenses designated by our operations managers when employees travel on projects. We don’t follow a traditional per diem model. Instead, we collect receipts for travel costs (like food, fuel, and accommodations), categorize them into the appropriate expense accounts, and link them to the specific project in Acumatica.
Recently, the managers have expressed a desire to categorize these travel expenses as Cost of Goods Sold (COGS) rather than general expenses. I’m considering a few options:
A. Maintain our current process, expensing travel monthly while associating transactions with the respective project.
B. Establish Work In Progress (WIP) and COGS accounts for project travel expenses, transitioning from WIP to COGS upon project completion.
C. Record travel costs directly as COGS tied to the project, while still expensing them monthly, so they appear separate from standard expense accounts.
I appreciate any insights or recommendations you can share! Thank you!
One response
When Accounting for project-related travel expenses, it’s important to ensure that your approach aligns with both your company’s financial reporting needs and GAAP (Generally Accepted Accounting Principles) guidelines. Given the situation you’ve described, here are some considerations for your options:
Option A: Keep the process the same and expense them monthly while linking the transaction to the project.
– This approach maintains a straightforward method of tracking expenses on a monthly basis. However, since your managers want to see travel expenses reflected as COGS, this option may not meet their requirements.
Option B: Create WIP/COGS accounts for project travel expenses and move from WIP to COGS when the project completes.
– This approach may provide a good compromise between tracking and reporting. By using Work In Progress (WIP) accounts, you can accumulate travel costs throughout the project lifecycle and transfer them to COGS only when the project is complete. This allows for clearer visibility of costs tied to specific projects while ensuring that project profitability is accurately reflected.
Option C: Enter just as COGS tied to the project and expense the travel monthly to show it separately from the normal expense accounts.
– This option could lead to confusion in your financial reporting, as you would be double-counting the expenses. Additionally, it may complicate budgeting and forecasting if travel costs are treated differently than other expenses.
Recommendation:
Consider Option B as it seems to align well with the desire to reflect travel expenses as part of COGS while still maintaining a clear record of expenses throughout the project lifecycle. This method ensures that the costs are tracked accurately during the project and only recognized in COGS upon project completion, which could give management better insight into project profitability.
Before finalizing your decision, it might be helpful to discuss with your finance team or an Accounting advisor to ensure that whatever methodology you choose is fully compliant with your accounting policies and provides the necessary insights your managers need.