Financial management and accounting fundamentals for construction

While construction professionals are skilled in the technical side of their work, they often find the financial management aspect of the business daunting. Financial Management and Accounting Fundamentals for Construction will help you better understand and navigate the financial decisions that are part of every construction project.

This book is a compact summary of the basic financial skills that a construction professional must have to be successful in the management of a construction company and its projects. Its topics address many of the questions that any construction administrator will face, such as:

How to organize and use a company's financial reports What amount of cash must be made available to the contractor to complete a project Why the early payment of supplier invoices can enhance profitability How to quantify the time value of money in financial decisions What tax amount is owed by a company and how it impacts the bottom line How to control project costs What financial sources are available to a construction contractor for capital expansion

In this text, you will learn about accounting fundamentals, project-related financial matters, and company level financial issues--three factors that are key to your career success. An ideal reference for students of construction management and engineering, as well as professionals who need a quick refresher when dealing with cost control analysis and other financial issues, this text also offers:

Easy-to-understand coverage of financial concepts specific to the construction industry, including business taxation, project control, engineering economy, and financial forecasting Numerous worked examples, plus end-of-chapter review questions and exercises Helpful appendices that present the structure of a typical chart of accounts, the flow of transactions through a construction accounting system, and tables required for computing interest and the time value of money

Author Notes

DANIEL W. HALPIN is Professor Emeritus and former head of the Division of Construction Engineering and Management at Purdue University. The author of more than ten books, he is a member of the National Academy of Construction, a recipient of ASCE's Peurifoy Construction Research Award and the Carroll H. Dunn Award of Excellence from the Construction Industry Institute (CII).

BOLIVAR A. SENIOR is an Associate Professor in the Department of Construction Management at Colorado State University. He has extensive professional experience in the management of construction projects. Dr. Senior has published many articles relating to construction financing as well as time planning and control. He is a member of the American Society of Civil Engineers and the Dominican College of Professional Engineers, Architects and Surveyors.

Preface

Chapter 1 Introduction

The Big Paradox

What is Financial Management?

Specifics: Areas Addressed Here

Project-Level Controls

Time value of money

Entrepreneurial Issues

Review Questions And Exercises

Chapter 2 Understanding Financial Statements

Introduction

Generally Accepted Accounting Principles

Cash and accrual bases: Two ways to look at accounting

Cash Basis of Accounting

Accrual Basis of Accounting

Accounts

Account Hierarchy

Financial Reports

Bookkeeping

The Balance Sheet

Balance Sheet layout

Balance Sheet Account Categories in Detail

The Fundamental Accounting Equation

Asset Values

The Fundamental Equation and Owners' Risk

Balance Sheet for Fudd Associates, Inc

Key Accounts

The Income Statement

Revisiting the Airport Screen

Components of an Income Statement - More Details

The Babel Tower of Accounting

The Statement of Cash Flows

Contract Backlog

Public Corporations

Review Questions And Exercises

Chapter 3 Analyzing Company Financial Data

Introduction

Vertical Analysis: Financial Ratios

Liquidity Indicators: Can this company get cash in a hurry?

Profitability Indicators: Is this company making enough profit?

Efficiency Indicators: How long does it take a company to turn over its money?

Capital Structure Indicators: How committed are the owners?

Other Indicators

Asset Newness

Horizontal Analysis: Tracking Financial Trends

Time Series Graphs

Conclusion

Review Questions And Exercises

Chapter 4 Accounting Basics

Introduction

Transaction Processing

Posting entries to the ledger

Relationship of work- in-progress and revenue/expense accounts

Closing the accounting cycle

Recognition of income

Transactions during a period

Posting to the general ledger during the accounting period

Closing actions at the end of the period

Review Questions And Exercises

Chapter 5 Project-Level Cost Control

Objectives of Project-level Cost Control in Construction

Unique Aspects of Construction Cost Control

Types of Costs

The Construction Estimate

Cost Control System

Building a Cost Control System

Cost Accounts

Cost Account Structure

Project Cost Code Structure

Cost Accounts for Integrated Project Management

Earned Value Analysis

Labor Data Cost Collection

Charges for Indirect and Overhead Expense

Review Questions And Exercises

Chapter 6 Forecasting Financial Needs

Importance of Cash Management

Understanding cash flow

Retainage

Project cost, value and cash profiles

Cash Flow Calculation -A Simple Example

Peak Financial Requirements

Getting Help from the Owner

Optimizing Cash Flow

Developing a Project Cash flow Estimate

Using software for cash flow computations

Company-level cash flow planning

Strategic cash flow management: "Cash Farming"

Project and General Overhead

Fixed Overhead

Considerations in Establishing Fixed Overhead

Breakeven Analysis

Basic Relationships Governing the Breakeven Point

Review Questions And Exercises

Chapter 7 Time Value of Money and Evaluating Investments

Introduction

Time value of money

Interest

Simple and compound interest

Nominal and effective rate

Equivalence and MARR

Discount Rate

Importance of Equivalence

Inflation

Sunk Costs

Cash flow diagrams

Annuities

Conditions for Annuity Calculations

Calculating the Future Value of a Series of Payments

Summary of equivalence formulas

Worth Analysis Techniques: An Overview

Present Worth Analysis

Investments with different life spans

Equivalent Annual Worth (EAW

Recovering investment capital

Internal Rate of Return

A Practical Example Using PW Analysis

Comparison Using EAW

An IRR Example - Owner Financing Using Bonds

Review Questions And Exercises

Chapter 8 Construction Loans and Credit

Introduction

The Construction Financing Process

An Example Developmental Project

The Amount of the Loan

How is the Cap Rate Determined?

Mortgage Loan Commitment

Construction Loan

Lines of Credit

Interest Paid on outstanding balance

Commitment fees

Compensating balances

Clean-up requirement

Collaterals

Accounts Receivable Financing

Trade Credits

Long Term Financing

Loans with end-of term balloon payments

Review Questions And Exercises

Chapter 9 The Impact of Taxes

Introduction

Types of taxes

Income Tax Systems

Alternatives for company legal organization

Taxable Income: corporations

Taxable income: individuals

Itemized deductions, standard deductions and personal exemptions

The Tax Significance of Depreciation

Calculating Depreciation

Straight-Line Method

The Production Method

Depreciation Based on Current Law

Marginal Tax Rates

Tax credits

Tax payroll Withholding

Tax payment schedules

Marginal, average and effective tax rates

Net Operating Losses

Taxes on dividends and long-term capital gains

Alternative Minimum Tax

Summary

Review Questions And Exercises

Appendix A Typical Chart of Accounts

Appendix B Further Illustrations of Transactions

Appendix C Compound Interest Tables

Index

Available:*

On Order

Summary

Summary

Author Notes

Table of Contents