Government contract accounting
What makes an accounting system adequate, how indirect rates are built and billed, how labour and job cost have to tie, and what the annual submission requires. Written for owners and finance leads at government contractors.
Government contracting changes the accounting before it changes anything else. Costs have to be segregated into direct, indirect and unallowable by the way the books are built, not by a spreadsheet applied afterwards. Indirect cost gets pooled and allocated through rates that someone outside your company will review. And on cost-type work, billing depends on the close — so a slow month end is a cash problem, not just a reporting one.
None of that is difficult. It is specific. Everything below covers it in the order it tends to matter. For what this means for an engagement with us, see government contractors. To find out where you stand, the GovCon controller diagnostic takes a couple of minutes.
If you are new to cost-type work
Three that carry most of the weight.
What an adequate GovCon accounting system has to do
The 18 accounting system criteria in DFARS 252.242-7006, what SF 1408 checks before award, and the small number of things that actually decide whether a system passes.
Read →Indirect rate structure: fringe, overhead, and G&A
How the three-tier pool and base structure works, how the rates stack, and what changes when you use a value-added G&A base.
Read →DCAA-compliant timekeeping
What a compliant timekeeping system requires, how labor distribution ties to the general ledger, and what happens in a floor check.
Read →The accounting system
What the government requires a set of books to do before it will put a cost-reimbursable or T&M contract on them.
What an adequate GovCon accounting system has to do
The 18 accounting system criteria in DFARS 252.242-7006, what SF 1408 checks before award, and the small number of things that actually decide whether a system passes.
Read →Direct vs. indirect costs in a GovCon business
How to decide whether a cost is direct, indirect, or unallowable — and why consistency matters more than the individual call.
Read →Building a GovCon chart of accounts
A chart of accounts that segregates direct, indirect, and unallowable costs by construction — so compliance is a byproduct of posting, not a cleanup project.
Read →QuickBooks, Unanet, PROCAS, and Costpoint
Where QuickBooks Online stops working for a government contractor, and what each of the purpose-built systems actually buys you.
Read →Rates
How indirect cost gets pooled, allocated, billed during the year, and settled after it.
Indirect rate structure: fringe, overhead, and G&A
How the three-tier pool and base structure works, how the rates stack, and what changes when you use a value-added G&A base.
Read →Provisional billing rates
How provisional rates get set under FAR 42.704, why they need monitoring every month, and how contractors end up owing money back at year end.
Read →Unallowable costs and how to segregate them
What FAR Part 31 makes unallowable, how to screen for it during the year rather than at year end, and why segregation has to be structural.
Read →Contracts and cash
What each contract type does to revenue, billing, and the gap between doing the work and getting paid.
Contract types and what they do to your books
FFP, T&M, cost-reimbursement, and IDIQ — what each one changes about revenue, billing, risk, and the records you have to keep.
Read →Job cost accounting by contract and task order
Accumulating cost by contract, task order, and CLIN so that job cost, the general ledger, and your billings all agree.
Read →Billing and invoicing government contracts
How to bill each contract type, what a public voucher has to show, and how to shorten the gap between incurring cost and collecting on it.
Read →Audit and annual filings
The records DCAA asks for, and the submission that closes out your fiscal year.
DCAA-compliant timekeeping
What a compliant timekeeping system requires, how labor distribution ties to the general ledger, and what happens in a floor check.
Read →The incurred cost submission
Who has to file, the six-month deadline under FAR 52.216-7, the ICE model schedules, and the deficiencies that get submissions returned.
Read →What DCAA looks at
The audits a small government contractor actually encounters, what each one examines, and what to have ready before the notification letter arrives.
Read →Who this is for
- Contractors bidding a first cost-reimbursable or T&M award who need an accounting system that will survive a pre-award survey
- Companies whose contract count has grown past what a general ledger and a spreadsheet can carry
- Owners who cannot currently say which contracts make money
- Finance leads preparing a first incurred cost submission
- Contractors who have taken a finding and need the structure fixed rather than patched
What we do about it
Bookkeeping gets the books clean, coded and closed on a schedule. Controller services add the parts government work requires: job cost by contract and task order, indirect rate calculation and monitoring, unallowable screening, billing support, and a close that produces numbers an auditor can follow.
Valuation, buyer readiness and transaction work sit with our sister firm, Sync CFO. We keep the books in the condition that work depends on.
Frequently asked
What makes government contract accounting different?
Costs have to be segregated into direct, indirect and unallowable by the way the books are built rather than by analysis afterwards. Indirect cost is pooled and allocated through rates someone outside the company reviews. And on cost-type work you bill actual cost, so billing depends on the close.
Do we need a DCAA-compliant accounting system?
Before award of a cost-reimbursable, incentive, T&M or labour-hour contract, or fixed-price work with progress payments based on cost — yes. For firm-fixed-price work alone, generally not, though you should still job-cost the work.
Is this the same as sale or M&A preparation?
No. This library covers the accounting system, rates and monthly operating discipline. Valuation, buyer readiness and transaction work for government contractors is handled by our sister firm, Sync CFO.
Where should we start if we just won our first prime?
The chart of accounts. Almost every problem contractors have later starts with a general ledger that was never structured to segregate direct from indirect.