Periodical Forecast FINANCIAL FORECASTS The form of statement prepared to forecast financial position depends upon conditions in each contractor's office and whether the report is periodically made a part of office routine or is intended for special purposes. One that should be included in office routine deals with anticipated monthly receipts and disbursements. Anticipated Receipts The section covering anticipated receipts should include: 2. Amount due from owner of each job. The amounts due from owners should be that shown on applications or bills rendered to them. The total of these sums should agree with that indicated by the balance sheet as "Accounts Receivable Current," plus any bills to be submitted during the period covered by the forecast but not prepared when the balance sheet and trial balance were completed. The period during which work was performed should be indicated to direct attention quickly to any owner's delay in paying amounts due the contractor. Parallel columns should be provided for insertion of payments received and for showing, at different times during the month, the totals of collections made and receipts still to come. Anticipated Disbursements The other section of the forecast indicates the disbursements to be made during the same period as that covered by the anticipated receipts. The difference between the two sections is either the estimated cash the contractor will have on hand at the end of the month, or other period, or the excess of anticipated disbursements over receipts and for which provision must be made. Disbursements should indicate as far as possible the sums applicable to each contract, for comparison with anticipated receipts thereon. Disbursements include: 1. Payments of payrolls for mechanics and laborers. 2. Payments to subcontractors. 3. Payments to material dealers and for miscellaneous purchases and services. 4. Payments of invoices subject to discount. 5. Payments of salaries to officers and office employees. Analyzing payments to material dealers to indicate the job to which they apply may sometimes involve more clerical work than results justify. It may necessitate a continuing daily segregation of cash disbursements made. The requirements of a financial forecast can often be as satisfactorily met by simply stating the total sum to be disbursed for this class of liabilities. Parallel columns are provided for the disbursement section of the forecast to indicate the total expenditures of each class for the same periods as those into which the receipts are divided. Settlements Not in Cash As the purpose of this forecast is to indicate the cash condition at the end of the period, allowance must be made for any settlements which will be effected in other form than in cash. Forecast on a Particular Operation A general forecast of the finances on a particular construction project is based on the working estimate, the time schedule (Form 4), and the contract with the owner. The anticipated disbursements are determined by taking the estimated cost of each feature of the work included in the working estimate (mentioned in Chapter XXI), and with the aid of the time schedule distributing this cost in separate columns allotted to the different months in which it will have to be paid. The emphasis is on date of payment, not on date of incurring liability. Wages are paid to workmen when earned and payments to material dealers in accordance with terms of purchase orders and agreements. Subcontracts generally provide for payments in the month succeeding performance of work, with the retention of part until the expiration of a definite period after entire completion. Addition of the columns will indicate approximately the portion of the contractor's total estimated cost which will be disbursed monthly during the progress of the work. The total sum to be paid the contractor by the owner is then distributed over the months in which collections will be made. The factors entering into the determination of the approximate monthly collections are the terms of the contract with the owner, the time schedule, and the working estimate plus the contractor's profit. Provisions must be made for settlements to be made in other form than in cash. A comparison of the approximate monthly collections and disbursements will reveal what investment the contractor may be required to make in the contract from month to month. If special construction equipment has to be purchased to execute the contract, the amount so expended should be added to results shown by comparison above mentioned. DAILY REPORT TO FINANCIAL OFFICER The officer in charge of the finances should be advised daily of the cash position of each of the contractor's offices. This daily report should indicate the available cash balance at the beginning of the preceding day, deposits made, with drawals, and balance at the end of the day. The figures given should be a summary of the transactions with each bank in which the contractor carries an account. Deposits are itemized on reports to show collections from individual owners or other special receipt but grouped as to total of miscellaneous items. Disbursements can be analyzed by classes of expenditures, such as payrolls, material dealers, subcontractors, etc. EQUIPMENT OPERATING STATEMENTS It may be unnecessary to prepare equipment operating statements in every contractor's office. They have a value only when he has a very heavy investment in equipment. While every contractor should possibly have some equipment available for use in the execution of contracts, the amount invested must be controlled by the average requirements of his construction work and by the possible economy of renting compared with the cost of owning it. Operating statements consist of those treating with income, some dealing with inventories, and others furnishing an analysis of operating costs. The income statements are prepared in trading account form; those covering inventory accounts correspond to merchandise statements and summarize the transactions from the inventory at the beginning of the period to the inventory at the end. A statement is also prepared giving the inventory value of equipment in each yard or on each job as a guide in determining the amount of fire insurance to be carried and in distributing fire insurance premiums. CHAPTER XVIII THE CONTRACTOR'S ACCOUNTING TO OWNERS UNDER COST-PLUS CONTRACTS Relation to General Books It is customary for contractors to render an accounting to owners when work is performed under cost-plus contracts. The object of this accounting is to establish the contractor's cost of the work and the sum to be paid him by the owner for the entire work. The accounting procedure on the general books heretofore described in connection with construction accounts and accounts with owners is modified only when cost-plus contracts are financed by the owner and not by the contractor. Basis of Accounting to Owner A contractor should regularly and promptly render an accounting to the owner of each cost-plus operation he is conducting. The routine and system followed are dependent upon whether the owner supplies the funds with which to meet payrolls and material bills or whether the contractor pays them and is later reimbursed by the owner. Financing by Owner A complete separate set of books must be kept when the owner supplies all funds necessary to pay payrolls, material bills, and subcontractors prior to the time the contractor disburses the money. The most satisfactory accounting procedure is to deposit the funds in a special bank account against which the contractor issues checks for all labor, material, and other |