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Construction Accounting and Financial Management

Construction Accounting and Financial Management. Chapter 14 Cash Flows for Construction Companies. Step 1. Estimated cash receipts and disbursements from construction operations Determine cash flow from individual projects and sum -- or -- Estimate cash flow based upon historical data.

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Construction Accounting and Financial Management

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  1. Construction Accounting and Financial Management Chapter 14Cash Flows for Construction Companies

  2. Step 1 Estimated cash receipts and disbursements from construction operations Determine cash flow from individual projects and sum -- or -- Estimate cash flow based upon historical data

  3. Step 2 Estimate general overhead Set overhead budget Estimate overhead wages

  4. Step 3 Estimate income tax, interest, loan payments, and cash balance Interest = Average balance for the month × Monthly Interest Rate Approximated by: Interest = (Beginning Balance – Monthly Labor/2) × Monthly Interest Rate

  5. Step 3 Loan payment from loans Calculate taxes Include underbillings and overbillings Calculate monthly cash flow Calculate cumulative annual cash flow: Ending Balance = Beginning Balance – Cash Flow

  6. Step 4 Determine minimum monthly balance (MMB) Approximated by: MMB = Beginning Balance – Monthly Labor

  7. Step 5 Fine tuning, what if, and sensitivity analysis Fine tuning—make adjustments to better fit reality (debug) What if—run alternate scenarios Sensitivity analysis—determine the sensitivity of each variable

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