Building a GovCon chart of accounts
Most accounting system findings trace back to a chart of accounts that was designed for a tax return. A GovCon chart is designed so that the correct answer falls out of normal posting, without anyone remembering to apply a rule at month end.
The organizing idea
Number the chart so that the account number itself tells you which bucket the cost is in and which pool it belongs to. If someone has to consult a memo to know whether account 6420 is overhead or G&A, the chart is not doing its job.
5000-5999 Direct costs 5100 Direct labor 5200 Direct fringe (if fringe is charged direct) 5300 Direct travel 5400 Direct materials 5500 Subcontracts 5600 Other direct costs (ODC) 6000-6299 Fringe pool 6300-6599 Overhead pool 6600-6899 G&A pool 7000-7999 Unallowable — mirrors the pool accounts above 7310 Unallowable — overhead: entertainment 7620 Unallowable — G&A: lobbying 7640 Unallowable — G&A: interest
Give each unallowable account a number that maps to the allowable account it would otherwise have hit. Screening the year becomes a report rather than an investigation.
Rules that keep it clean
- One cost type, one account. Do not let a single account collect both allowable and unallowable travel with the difference living in the memo field.
- No account belongs to two pools. If a cost is split between overhead and G&A, split it at entry into two accounts, not with a month-end allocation journal nobody can reproduce.
- Keep the direct accounts thin. Detail belongs in the job cost dimension — contract, task order, CLIN — not in a proliferating list of contract-specific GL accounts.
- Every account carries a written definition. One sentence describing what goes in and what does not.
- Add accounts at a fiscal year boundary where you can. Mid-year structural changes make the incurred cost submission harder to reconcile.
What sits alongside the chart
The chart of accounts is one of three structures. The other two carry the detail that would otherwise bloat it:
| Structure | Carries |
|---|---|
| Chart of accounts | Nature of the cost — labor, travel, materials — and its bucket and pool. |
| Job cost structure | Which contract, task order, and CLIN the cost belongs to. Also period of performance and funded value. |
| Labor categories | Which contract labor category the hours were worked in, for T&M billing and for rate compliance. |
Getting the split right is what keeps a company from having 400 GL accounts by year three. Nature in the chart. Contract in the job structure. Category in the labor structure.
Converting an existing chart
- Pull a full-year trial balance and mark every account direct, fringe, overhead, G&A, unallowable, or non-cost.
- Find accounts that carry more than one bucket. Those are the ones to split.
- Build the new numbering and map old to new, one row per account. Keep the map; the incurred cost submission will need it.
- Move the balances at a fiscal year boundary if at all possible. Mid-year conversions require you to present both structures for the year.
- Rerun the prior year under the new structure as a check. The rates should come out the same. If they do not, the mapping is wrong.
Frequently asked
How many accounts should a small government contractor have?
Fewer than most have. A company under about $20M can usually run on 80 to 150 accounts if contract detail lives in the job cost structure rather than in the chart. Account count grows when contract-specific accounts get added instead of job codes.
Do we need separate fringe accounts if we charge fringe direct?
Yes. If any portion of fringe is charged direct, it needs its own direct accounts so it does not double up when the fringe rate is applied. Most contractors find a single fringe pool simpler and easier to defend.
Can we change the chart of accounts mid-year?
You can, but the incurred cost submission then has to reconcile across both structures for that fiscal year. Where the change is not urgent, wait for the year boundary.
Does QuickBooks Online support this structure?
Yes for the chart itself and for a single-tier job structure using customers and projects. It gets strained when you need task orders under contracts under a prime, or automated indirect allocation.
Related
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 →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 →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 →