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Construction Accounting and Financial Management

Construction Accounting and Financial Management. Chapter 12 Cash Flows for Construction Projects. Cost of Work. Cost of work performed without profit and overhead markup. Cost of Work. Payment. Suppliers Monthly (preferably when paid) Labor Weekly Subcontractors When paid

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Construction Accounting and Financial Management

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  1. Construction Accounting and Financial Management Chapter 12Cash Flows for Construction Projects

  2. Cost of Work Cost of work performed without profit and overhead markup

  3. Cost of Work

  4. Payment Suppliers Monthly (preferably when paid) Labor Weekly Subcontractors When paid Withhold retention

  5. Payments

  6. Value, Costs, and Receipts Value Value of work based upon contract with the owner (schedule of values) Includes costs and profit and overhead markup Cost Cost of work performed without P&O markup Receipts Payments from the owner

  7. Value, Costs, and Receipts

  8. Cash Provided by Contractor Difference between payments and receipts

  9. Cash Provided by Contractor

  10. Determining a Project’s Cash Flow Step 1: Prepare a cost-loaded schedule Step 2: Determine when costs will be paid 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)

  11. Determining a Project’s Cash Flow Step 3: Determine when payments will be received from owner When will cost be billed When will bills be paid Step 4: Difference in cash flows Cash required = Payments – Receipts

  12. Maximum Cash Required When payments are received at the end of the month, the maximum amount of cash required often occurs during the month Not at months end

  13. Cash Invested on Project with Progress Payments

  14. Cash Invested on Project without Progress Payments

  15. Reducing the Cash Required Increased use of subcontracts that are paid when paid Reduce retention rate Increase profit and overhead markup Front-load the schedule of values Increase value of early work and decrease value of later work

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