How the project group, category, and line property determine project postings

Applies To: Project Operations for manufacturing-based scenarios

Project Operations provides robust capabilities for capturing costs and revenue associated with projects. Project postings are the financial results that business processes drive, such as posting a packing slip or processing revenue recognition. A combination of factors determines these results:

• The project transaction type (hour, expense, item, fee, or on-account)
• Project categories and their category group
• Project group configuration
• Line properties
• Other configuration

This article explains how these settings work together to determine:

• Which ledger accounts to use.
• Whether postings affect the profit and loss (P&L) or balance sheet (WIP) on your financials.
• When revenue accrues ahead of invoicing.
• Whether costs are capitalized or expensed.

Project transaction types

Project management and accounting supports five predefined transaction types:

• Hour – Link transactions to the use of project workers, delivering services such as consulting, installation, or design.
• Expense – Associate transactions with expenses for a project, unless the transactions relate to items or costs. Examples include travel expenses or vendor services.
• Item – Link transactions to items that you purchase for resale, and to items that you consume in a project, such as when a customer purchases a new computer for the project through the company.
• Fee – Associate fixed revenues with a Time and material project, such as a bonus for the early delivery of a project blueprint plan and budget.
• On-account - Represent prepayments for either a Fixed-price or Time and material project or scheduled payments for a Fixed-price projects.

Project categories and groups

You can categorize revenue and expenses on projects to control posting to the general ledger, and for detailed reporting and analysis. By categorizing expenses and revenues separately from the general ledger, Project Managers can get more details about project performance.

Set up category groups when categorizing a set of similar transactions of a specific type. Category groups let you share properties, primarily posting profiles, between related categories. Create at least one category group for each transaction type, and assign each project category to a category group. Because project categories are assigned to a single group, they're associated with the same transaction type as the category group. Set up category groups by going to Project management and accounting > Setup > Categories > Category groups.

Project categories are the basic grouping for project transactions. Individual project categories can have unique cost and revenue accounts and be used to differentiate between travel expenses related to hotels, and travel expenses related to mileage. When you enter a project category on a transaction line, the category selection is limited to the categories that are set up and linked to this transaction type. For example, when an expense transaction is entered, only expense categories are available. Set up categories by going to Project management and accounting > Setup > Categories > Project categories.

Shared categories are a parent grouping of project categories that you can share across applications and modules. Microsoft Dynamics 365 uses the shared categories concept to categorize expenses in different applications, such as Microsoft Dynamics 365 Finance, Microsoft Dynamics 365 Supply Chain Management, and Project Operations. A shared category must exist before you can create a project category in any consuming legal entity. Review and adjust the shared categories by going to Project management and accounting > Setup > Categories > Shared Categories.

New functionality to allow categories on on-account type transactions

In the 10.0.46 release, a new feature lets you create a category and group for on-account type transactions. Within Feature management, the Enable project categories for on-account transactions feature is now available. New functionality enabled by this feature includes:

• Project management and accounting parameters have a new default setting to default the category for on-account transactions. This default applies to both retainers and milestone transactions.
• The Category groups form now allows you to configure groups of type on-account.
• The Project categories form now allows you to configure a category of type on-account.
• Category is added as an optional field. Existing on-account transactions continue to work without a category configured. New on-account transactions work with or without a category defined. Posting continues to be based on the setup of Ledger posting setup for the Invoiced revenue - on-account posting type.
• The Ledger posting setup form was enhanced to allow for configuration of a specific main account for a specific category relation. This enhancement allows users to set up a different revenue account for different categories.
• The On-account form allows for editing of the category, and the Project invoice proposal form before posting.

Project Groups

Your project could be an internal project tracking costs only, or it could be a revenue generating project. The different project types are discussed more in Create Projects. Project groups determine many of the fundamental accounting rules of how the project financials should be generated for a given project type. For hour, expense, item, and on-account transactions, you can choose to post transactions to either Profit and loss or Balance accounts. In certain cases, you can also choose not to post hour transactions.

Every project must belong to a project group. Therefore, you must set up at least one project group when you set up Project management and accounting.

A project must be assigned to a project group that you created for that type of project. If you move a project from one project group to another project group, and the new project group was created for a different project type, the project changes to the new type.

After you set up a project group in the Project groups form and select its project type, you can specify several default settings for it. These settings include transaction line properties, on-account invoice posting, journalizing, and cost and revenue accounts.

• Invoicing – Determine whether on-account invoices for Time and material and Fixed-price projects are posted to revenue accounts or work-in-process (WIP) accounts.
• Journalizing – Indicate whether hour costs, expense costs, and item costs should be posted to Profit and loss accounts or Balance accounts, or not posted. When you post transactions in the respective transaction, the system performs a check to ensure that a ledger account is available, and that the account is the appropriate type.
• Cost accounts and Revenue accounts – Specify whether a specific ledger account applies in every situation and to every project in this group. If more flexibility is required, you can set up ledger posting at the category level or project level.

After you assign a project to a project group, you can't change the options that are defined for ledger updates in the project groups.

Line properties

Use the line properties to set posting behavior for hour, fee, expense, and item transaction lines. When you create transactions for projects, the system automatically adds the default line properties to the lines in journals, invoices, and other postings. By setting up default line properties, you can minimize repetitive tasks when you work with projects.

The key settings in line properties include the setting for if chargeable or not, whether for WIP posting to accrue revenue or not, and lastly the option to capitalize cost or not.

The purpose of the line property depends on the project type:

• Fixed-price and investment projects – The line property affects only whether the cost amount is capitalized as a fixed asset.
• Time and material projects – The line property controls whether transactions are chargeable or nonchargeable, whether the sales amount is accruable or nonaccruable, and whether the cost amount is capitalized as a fixed asset.

The Capitalize cost setting on line properties plays a crucial role in how project-related costs are treated in accounting, especially in terms of asset capitalization versus expense recognition.

Typical line property examples:

Chargeable – Billable, accrue revenue, capitalize cost Nonchargeable – Not billable, no revenue, direct P&L Internal – No revenue, but costs can be capitalized (for example, investment projects)

Revenue recognition elimination

For fixed-price and investment type projects, the system determines the posting behavior based on whether the project is eliminated. If the project is a balance sheet type project, but you eliminate the project, any new postings to the project go directly to profit and loss.

How project groups, categories, and line properties work together

When you post a project transaction (for example, an hour journal or item requirement), the posting engine works roughly as follows:

1. Determine transaction type and project type

   • Example: Hour transaction on a Time and material project.

2. Determine whether cost goes to profit and loss or balance sheet

   • Uses project group journalizing and line property capitalization to decide P&L expense account vs WIP cost account.

3. Apply line property rules

   • Chargeable = invoicing behavior
   • Accrue revenue = use accrued revenue accounts, which generate another accounting record on transaction posting.
   • Capitalize cost = post to WIP accounts which overrides the project group

4. Select main accounts. Evaluate posting rules using ledger posting setup using:

   • Project / project group
   • Category / category group
   • Funding source (when used)
   • Apply All / Group / Table precedence; category‑specific settings override group‑level.

5. Create ledger entries

   • For each posting type (Cost, WIP cost, Revenue, Accrued revenue, Invoiced revenue, and so on), the system derives debit and credit accounts from the referenced configuration.