Financial Management and Accounting Fundamentals for Construction Book

Preface.

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.

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.

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.

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.

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.

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.

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.

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.

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.