Construction Accounting and Financial Management Chapter 12 Cash

Cost of Work n Cost of work performed without profit and overhead markup Construction

Cost of Work Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by

Payment n Suppliers q n Labor q n Monthly (preferably when paid) Weekly Subcontractors

Payments Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher

Value, Costs, and Receipts n Value q q n Cost q n Value of

Value, Costs, and Receipts Construction Accounting & Financial Management, 3/e Steven Peterson © 2013

Cash Provided by Contractor n Difference between payments and receipts Construction Accounting & Financial

Cash Provided by Contractor Construction Accounting & Financial Management, 3/e Steven Peterson © 2013

Determining a Project’s Cash Flow n Step 1: Prepare a cost-loaded schedule n Step

Determining a Project’s Cash Flow n Step 3: Determine when payments will be received

Maximum Cash Required n When payments are received at the end of the month,

Cash Invested on Project with Progress Payments Construction Accounting & Financial Management, 3/e Steven

Cash Invested on Project without Progress Payments Construction Accounting & Financial Management, 3/e Steven

Reducing the Cash Required n Increased use of subcontracts that are paid when paid

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Construction Accounting and Financial Management Chapter 12 Cash Flows for Construction Projects Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Cost of Work n Cost of work performed without profit and overhead markup Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Payment n Suppliers q n Labor q n Monthly (preferably when paid) Weekly Subcontractors q q When paid Withhold retention Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Value, Costs, and Receipts n Value q q n Cost q n Value of work based upon contract with the owner (schedule of values) Includes costs and profit and overhead markup Cost of work performed without P&O markup Receipts q Payments from the owner Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Cash Provided by Contractor n Difference between payments and receipts Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Determining a Project’s Cash Flow n Step 1: Prepare a cost-loaded schedule n Step 2: Determine when costs will be paid q q Following week (e. g. , labor) End of month (e. g. , some materials) When paid, paying retention (e. g. , some materials) When paid, holding retention (e. g. , subcontracts) Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Determining a Project’s Cash Flow n Step 3: Determine when payments will be received from owner q q n When will cost be billed When will bills be paid Step 4: Difference in cash flows q Cash required = Payments – Receipts Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Maximum Cash Required n When payments are received at the end of the month, the maximum amount of cash required often occurs during the month q Not at months end Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Cash Invested on Project with Progress Payments Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Cash Invested on Project without Progress Payments Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved

Reducing the Cash Required n Increased use of subcontracts that are paid when paid n Reduce retention rate n Increase profit and overhead markup n Front-load the schedule of values q Increase value of early work and decrease value of later work Construction Accounting & Financial Management, 3/e Steven Peterson © 2013 by Pearson Higher Education, Inc Upper Saddle River, New Jersey 07458 • All Rights Reserved