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Offshore projects are a common place in today’s SME business. It is a practice in such projects for the client to reimburse expenses and costs incurred by the service provider.
The service provider would want to bill the customer accordingly and know the actual profitability by assessing the exact cost of the project.
In this case study we will look at a business owner having a project “Manipur” going on in Manipur with the need to manage costs of the project. The business owner sends his employee to Manipur and that employee manages the work being onsite. During his stay in Manipur the employee incurs both personal expenses and also costs related to the project. We will account all project costs and manage using cost centres.
Business Owner – Mr Pratap
His Employee – Mr Kumar
The employee is allocated some amount for this project/ the organization (NGO) receives grants to be used for this project.
Payment of amount to the employee
1.Mr pratap gives Rs. 10,000 to his employee Mr. Kumar and sends him to Manipur for this project. Simultaneously Mr Pratap will keep track of expenses so that later he can send a bill to the client and if need be can also get his reimbursements for the expenses for that project.
Make a payment of Rs. 10,000 to Mr. Kumar for Project “setting up a centre in Manipur”
create a Project (Manipur Project) as a cost centre under the Primary cost category ( under Primary)
Recording of expenses incurred by Mr. Kumar both personal and for the project.
Mr. Kumar purchases raw material worth Rs. 2500 for the project.
Note: To take account of Purchases for a project using cost centers we need to make purchases in a journal voucher or purchase in the voucher mode. As of now, the purchase voucher does not take into account cost centres in the invoice mode.
Mr. Kumar spends Rs. 1000 on Travelling expenses for the Manipur project.
The advantage of using a journal voucher for these entries is that along with maintaining travel expenses related to the Project in Manipur. We can also keep track of expenses by the employee ( using against Reference ). Note the current balance for Mr. Kumar shows as 9000( 10,000-1,000).
Similarly, the employee incurs an expense of 5000 on Hotel stay and 2000 on Food during his Manipur tour.
Please note that we have only taken into account the expenses for cost center consideration. In any voucher –only one of the ledgers should be tagged with cost centers, this shall enable us to get a clear report while making a cost category analysis. Therefore food expenses is booked separately as shown below.
Note that current balance of Mr. Kumar is only Rs. 2,000 the 8,000 have been spent as;
Go to Display > Statement of Accounts > Cost centres > Cost center break up > Select project Manipur from th list of cost centres
Press enter and then go to detailed view, it clearly shows that under in-direct expenses you have the expenses incurred by the employee (you could also create a sub group employee wise)
Now let us say we make a bill of 25,000
Go to Display > Statement of Accounts > Cost centres > Cost center break up > select project Manipur
The report displays a break up and the closing balance at the grand total also gives us the actual profit after deducting the expenses.
In this case the profit is Rs.14,500
Now at the end of the project, go to
Display > statement of accounts > Outstandings > Receivables > All items
This again shows that after the project Mr. Kumar has to return Rs. 2,000 for the project. Also we need to see what is the outstanding of the Manipur Party ( from whom we need to take the payment- tha party to whom the sales bills had been issued)
Similarly we can have multiple projects going on and we can also compare a report, let us say another Project was going on in Mumbai and another Employee named Mr Poddar was sent to Mumbai to oversee the project.
Now, the expenses were made in the Mumbai project by Mr. Poddar and report of the cost center is shown below for the Mumbai project.
A comparison report of the two projects can be obtained, press ALT+C in above report screen and select Manipur project and then select the last group as Primary.
A report is obtained as shown below:-
Also, if you want a complete report of all the cost centers you can press F12 and enable the Total Column and get a report and summary of all the cost centers being maintained.