7. Financial Resources Flashcards
What is expenditure?
When a project is undertaken, the parties involved will have to make various payments – their expenditure. The promoter generally has to make payments to one or more main contractors. On traditional contracts they may have to pay designers’ fees and other specialist fees.
What examples will incur expenditure?
>to suppliers of materials; >to subcontractors for work carried out; >to internal or external plant hire companies; and >to directly employed labour; >overheads.
What is meant by the term ‘price’?
The price is the sum of money charged by a contractor or supplier to cover its costs and also pay a profit.
What is meant by the term ‘surplus’?
It may be that the actual cost incurred may be different from the estimated cost, in which case the profit will be different from that anticipated. The price will invariably remain the same so often the profitability is indicated by the surplus – quite simply the difference between the expenditure and the income. A negative surplus indicates the actual costs are greater than the price received.
What is meant by the terms ‘liability’ and ‘earnings’?
The provision of work and services rarely occurs at the same time as an exchange of money. In the same way as someone who has a job rarely gets paid in advance a contractor will get paid by the promoter some time after an element of work is completed. The contractor itself will pay its labour force, material suppliers and subcontractors in arrears.
In financial terms when work or service is provided by one of the areas of cost a liability is incurred by the receiver of that work or service. After a period of time (that is negotiated and indicated by the contract between these two parties) a payment is made and the liability becomes an expenditure. The supplier of the work or service has provided some value but will not get paid for it for the (agreed) period of time. The supplier has generated earnings – this earning becomes income once payment is made. This may seem irrelevant – the money is paid eventually, and as long as everyone’s income is greater than its expenditure they will all be happy. However, the time delay between liability and expenditure will vary depending on type of expenditure and between projects; there may also be retentions written into the contract (money held back) that are only paid at the end of the project. All this means that projects measured on a comparison of income and expenditure may give a false impression of profitability.
