Construction Accounting and Financial Management

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CONTENTS......Page 10
PART I: INTRODUCTION TO CONSTRUCTION FINANCIAL MANAGEMENT......Page 20
CHAPTER 1 CONSTRUCTION FINANCIAL MANAGEMENT......Page 22
Why Is Construction Financial Management Different?......Page 24
What Does a Financial Manager Do?......Page 27
Problems......Page 32
PART II: ACCOUNTING FOR FINANCIAL RESOURCES......Page 34
CHAPTER 2 CONSTRUCTION ACCOUNTING SYSTEMS......Page 36
Cost Reporting versus Cost Control......Page 37
Method of Accounting......Page 39
The Balance Sheet......Page 43
The Income Statement......Page 49
The Job Cost Ledger......Page 56
The Equipment Ledger......Page 62
Conclusion......Page 64
Problems......Page 65
CHAPTER 3 ACCOUNTING TRANSACTIONS......Page 66
Invoice Charged to a Job without Retention......Page 67
Invoice Charged to a Job with Retention......Page 68
Paying Invoices......Page 69
Labor Charged to a Job......Page 70
Labor Charged to General Overhead......Page 72
Paying an Employee’s Wages......Page 74
Paying for Benefits......Page 75
Vacation Time for Jobsite Employees......Page 76
Recording Office Rent......Page 77
Recording Office Depreciation......Page 78
Recording General Overhead Invoices......Page 79
Billing a Client......Page 80
Receiving Payment from a Client......Page 81
Purchase of Equipment with a Loan......Page 82
Equipment Depreciation......Page 83
Leased Equipment with an Operating Lease......Page 84
Leased Equipment with a Capital Lease......Page 85
Lease Payments on a Capital Lease......Page 86
Amortization of a Capital Lease......Page 87
Invoice for Equipment Repairs......Page 88
Equipment Charged to a Job......Page 89
Equipment Charged to an Employee......Page 90
Sale of Equipment......Page 91
Purchase of Inventory......Page 92
Charging Inventory to a Job......Page 93
Recording Changes in Costs and Profits in Excess of Billings......Page 94
Recording Changes in Billings in Excess of Costs and Profits......Page 95
Problems......Page 96
Committed Costs and Estimated Cost at Completion......Page 100
Overbillings and Underbillings......Page 105
Internal Controls......Page 108
Computerized Accounting Systems......Page 109
Problems......Page 111
CHAPTER 5 DEPRECIATION......Page 114
Straight-Line Method......Page 115
Sum-of-the-Years Method......Page 117
Declining-Balance Method......Page 121
Placing in Service and Disposing of an Asset......Page 127
IRS Standard Recovery Periods and Depreciation Methods......Page 128
Depreciation for Nontax Purposes......Page 137
Conclusion......Page 140
Problems......Page 141
References......Page 143
CHAPTER 6 ANALYSIS OF FINANCIAL STATEMENTS......Page 144
Depreciation and Financial Analysis......Page 146
Quick Ratio......Page 147
Current Ratio......Page 148
Current Liabilities to Net Worth Ratio......Page 149
Debt to Equity Ratio......Page 150
Fixed Assets to Net Worth Ratio......Page 151
Current Assets to Total Assets Ratio......Page 152
Collection Period......Page 153
Average Age of Accounts Payable......Page 155
Assets to Revenues Ratio......Page 156
Working Capital Turns......Page 157
Accounts Payable to Revenues Ratio......Page 159
General Overhead Ratio......Page 160
Profit Margin......Page 161
Return on Assets......Page 162
Return on Equity......Page 163
Degree of Fixed Asset Newness......Page 164
Problems......Page 165
PART III: MANAGING COSTS AND PROFITS......Page 172
Monitoring and Controlling Construction Costs......Page 174
Monitoring Job Profitability......Page 180
Target Levels for CPI and SPI......Page 189
Problems......Page 192
CHAPTER 8 DETERMINING LABOR BURDEN......Page 196
Cash Equivalents and Allowances......Page 200
Payroll Taxes......Page 201
Unemployment Insurance......Page 203
Workers’ Compensation Insurance......Page 205
Insurance Benefits......Page 206
Union Payments......Page 207
Other Benefits......Page 208
Problems......Page 209
What Is General Overhead?......Page 212
The General Overhead Budget......Page 213
Items to Include in the General Overhead Budget......Page 214
Estimating General Overhead......Page 220
Types of Costs......Page 222
Sample of a General Overhead Budget......Page 224
Problems......Page 235
The Profit Equation......Page 240
Contribution Margin......Page 242
Projecting Break-Even Volume of Work......Page 243
Projecting Break-Even Contribution Margin Ratio......Page 245
Adjusting the Financial Mix......Page 247
Profit and Overhead Markup......Page 249
Problems......Page 252
Sources of Profit......Page 256
Allocation of General Overhead......Page 260
Profit Center Analysis......Page 263
Conclusion......Page 272
Problems......Page 273
PART IV: MANAGING CASH FLOWS......Page 276
CHAPTER 12 CASH FLOWS FOR CONSTRUCTION PROJECTS......Page 278
Cash Flow for Projects with Progress Payments......Page 279
Cash Flow for Projects with a Single Payment......Page 304
Conclusion......Page 307
Problems......Page 308
Corporate versus Personal Income Tax......Page 314
Taxable Income......Page 315
Income Tax Rates......Page 317
Marginal or Incremental Tax Rate......Page 321
Capital Gains and Losses......Page 322
Tax Consequences of Depreciation......Page 323
Nondeductible Expenses/Costs......Page 327
Alternate Minimum Tax......Page 328
Conclusion......Page 329
Problems......Page 330
References......Page 331
CHAPTER 14 CASH FLOWS FOR CONSTRUCTION COMPANIES......Page 332
Incorporating Construction Operations......Page 333
Incorporating General Overhead......Page 344
Income Taxes, Interest, Loan Payments, and Cash Balance......Page 347
Determining the Minimum Monthly Balance......Page 352
Fine Tuning, What If, and Sensitivity Analysis......Page 353
Conclusion......Page 355
Problems......Page 356
CHAPTER 15 TIME VALUE OF MONEY......Page 360
Equivalence......Page 361
Single-Payment Compound-Amount Factor......Page 362
Single-Payment Present-Worth Factor......Page 366
Uniform-Series Compound-Amount Factor......Page 369
Uniform-Series Sinking-Fund Factor......Page 371
Uniform-Series Present-Worth Factor......Page 374
Uniform-Series Capital-Recovery Factor......Page 376
Cash Flow Diagrams......Page 378
Complex Cash Flows......Page 379
Find Unknown Periodic Interest Rates......Page 385
Inflation and Constant Dollars......Page 390
Problems......Page 391
CHAPTER 16 FINANCING A COMPANY’S FINANCIAL NEEDS......Page 396
Interest......Page 397
Loans and Lines of Credits......Page 402
Loans......Page 404
Lines of Credits......Page 426
Trade Financing......Page 432
Credit Cards......Page 434
Selecting a Banker......Page 435
Applying for a Loan......Page 436
Conclusion......Page 437
Problems......Page 438
PART V: MAKING FINANCIAL DECISIONS......Page 442
CHAPTER 17 TOOLS FOR MAKING FINANCIAL DECISIONS......Page 444
Sunk Costs......Page 448
MARR (Minimum Attractive Rate of Return)......Page 449
Adjusting Life Spans......Page 450
Net Present Value or Present Worth......Page 454
Incremental Net Present Value......Page 463
Future Worth......Page 467
Annual Equivalent......Page 470
Rate of Return......Page 472
Incremental Rate of Return......Page 477
Capital Recovery with Return......Page 480
Payback Period without Interest......Page 481
Payback Period with Interest......Page 484
Project Balance......Page 486
Problems......Page 490
CHAPTER 18 INCOME TAXES AND FINANCIAL DECISIONS......Page 496
Losses Carried Forward......Page 497
Different Tax Rates......Page 498
Depreciation......Page 500
Capital Gains......Page 501
Tax Credits......Page 502
After-Tax Cash Flows......Page 504
Problems......Page 513
APPENDIX A: COMPUTERIZED ACCOUNTING SYSTEMS......Page 516
APPENDIX B: EXCEL PRIMER......Page 522
APPENDIX C: TREND ANALYSIS......Page 530
APPENDIX D: DERIVATION OF SELECTED EQUATIONS......Page 538
APPENDIX E: INTEREST FACTORS......Page 542
APPENDIX F: AMORTIZATION SCHEDULE......Page 574
APPENDIX G: GLOSSARY......Page 584
APPENDIX H: LIST OF VARIABLES......Page 594
C......Page 596
E......Page 597
I......Page 598
M......Page 599
R......Page 600
Y......Page 601