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
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
Cost of Work
Construction Accounting & Financial Management, 3/e
Steven Peterson
2013 by Pearson Higher Education, Inc
Upper Saddle River, New Jersey 07458 All Rights Reserved
Payment
Suppliers
Labor
Monthly (preferably when paid)
Weekly
Subcontractors
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
Payments
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
Value
Cost
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
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
Value, Costs, 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
Cash Provided by Contractor
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
Cash Provided by Contractor
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 Projects 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)
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 Projects 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
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
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
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
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
Construction Accounting & Financial Management, 3/e
Steven Peterson
2013 by Pearson Higher Education, Inc
Upper Saddle River, New Jersey 07458 All Rights Reserved
