Financial Statements

Finance officers have long-established standards for reporting the numbers. The general body of knowledge for accounting standards is contained in the Generally Accepted Accounting Principles (GAAP), published and maintained by the accounting industry. Within your business, the controller (comptroller, if you are in the government) is the chief accountant. The controller interprets and applies the GAAP to the specifics of your company.

Financial information is more often than not presented on a set of "financial statements." We will discuss three of those statements that are of most use to the project manager. The statements are:

The expense statement: Often called the "profit and loss" or "P&L" statement, the expense statement is where project financial expenses are "recognized" by the controller and recorded each period. We will learn that not all expenses on the expense statement are cash expenses, so to keep the books on the expense statement means keeping track of more than just the checks that are written. A common refrain is: "Cash is a fact, but profit is an opinion." ^[1] This reflects the thought that the expense statement is subject to much interpretation of the GAAP, whereas cash is tangible and well understood without ambiguity.
The balance sheet: The balance sheet is a two-sided ledger that we studied in Chapter 3. It is a recording of a snapshot in time of the dollar value of all the assets, liabilities, and capital employed on the project.
The cash flow statement: Actual cash going into or out of the company or project is recorded on the cash flow statement. It is on the cash flow statement that we actually see "sources and uses" of cash in the project.

The neat thing about these statements is that they actually all play together, something engineers and project professionals would call system integration, but accountants would call "balance" or "reconciliation." Even though one statement may measure flow and another may measure a value at a point in time, over the life of the project an entry on any one of these statements has a corresponding response on another statement. Collectively, and with their risk-adjusted partners, net present value and economic value add, the project financial statements provide a rich source of information about the performance of projects.

The chart of accounts was discussed in the chapter on the work breakdown structure (WBS). The chart of accounts is the controller's WBS of the business. The WBS of the project is just an extension of the WBS of the business, i.e., the chart of accounts. In this chapter, we will discuss the "trial balance" as a reporting tool for financial and project managers that is closely tied to the chart of accounts and the financial statements.