Construction Accounting and Financial Management Second Edition

Abstract

Several years ago I was asked to teach a course on construction accounting and finance. The course was to cover the fundamental principles needed by construction managers to successfully manage the finances of construction companies. In preparing to teach this course I found that these principles were scattered among many disciplines, including business management, engineering economics, accounting, estimating, project management, and scheduling. After I reviewed the available textbooks, two things were apparent. First, the material was often presented in a generic fashion and failed to address how the principles applied to the construction industry. For example, in most accounting textbooks only a few pages were devoted to the accounting procedures for long-term contracts, which comprise a bulk of the projects for general construction companies. Second, with the topics scattered among many disciplines and textbooks, the topic of how the different components of construction financial management were interrelated and interacted was being ignored. Financial management may be defined as the use of a company’s financial resources and encompasses all decisions that affect a company’s financial health. Many everyday decisions affect a company’s financial health. The difference between a marginally profitable and a very profitable company is good financial management. Business schools teach the fundamental principles of financial management; however, because of the many unique characteristics of the construction industry, the usefulness of these financial principles as taught by business schools is limited. To be useful, these principles must be adapted specifically to the construction industry. For example, in the construction industry equipment is mobile and may be needed for multiple jobs during a single month. Traditional accounting methods and financial statements do not allow a company to properly manage and account for its equipment. This book was written to help construction professionals—both those who are working in the construction industry and those seeking a degree in construction management—learn how the principles of financial management can be adapted to and used in the management of construction companies. This book will be most useful for general managers and owners of companies who are responsible for