Managing Travel Expenses for Projects
Hello everyone,
I am a project accountant at a small firm with revenue under $30 million. Our operations managers typically include travel expenses in the quotes for employee trips, but we don’t follow a traditional per diem model. Previously, we would collect travel receipts (for food, fuel, hotels, etc.), allocate them to the appropriate expense accounts, and link them to the related project in Acumatica.
Recently, the managers have expressed a desire to categorize these travel expenses as Cost of Goods Sold (COGS) rather than standard expenses. I’m considering the following options:
A. Maintain our current process, expensing travel costs monthly and linking them to the project.
B. Establish Work In Progress (WIP) and COGS accounts specifically for project travel expenses, then transfer them from WIP to COGS upon project completion.
C. Record the travel expenses directly as COGS linked to the project, while still expensing them monthly to distinguish them from regular expenses.
I would appreciate any insights or suggestions on the best approach to take. Thank you!
One response
It’s great that you are considering the best way to account for project travel expenses in your small company. Each approach has its pros and cons, but I would recommend option B: creating WIP/COGS accounts for project travel expenses and moving them from WIP to COGS when the project is completed.
Here’s why this approach makes sense:
Alignment with Project Costs: Treating travel expenses as WIP aligns them more closely with the overall project costs, allowing for a clearer picture of the project’s profitability and resource allocation.
Accuracy in Financial Reporting: By recording the travel expenses as WIP until the project is completed, you avoid inflating your expense accounts prematurely, which could skew your financial statements.
Visibility for Managers: This method provides the operations managers with better visibility into how much of the total project costs are tied to travel, giving them greater control and insight into budget adherence.
Consistency in Accounting Practices: By creating a standard method for treating these costs, your Bookkeeping will remain consistent and straightforward, making it easier to explain and defend during audits or financial reviews.
Flexibility for Future Projects: This approach can be easily adapted for any future changes in how you manage project costs, especially as your company grows.
In summary, adopting a WIP/COGS approach not only provides clarity and accuracy in Accounting but also supports better budgeting and financial management for project-based work. However, make sure to communicate any changes to the project managers and provide them with the necessary training or guidance on how the new process will work.