Industry

Government Contracting

Accounting Designed for the Government Contracting Environment

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Government contractors face accounting requirements that extend well beyond ordinary bookkeeping.

Contract costs, labor, indirect expenses, billing, timekeeping, and unallowable costs may need to be identified and reported using consistent accounting procedures.

Akato & Associates helps government contractors build financial systems designed to provide both management insight and stronger contract-accounting discipline.

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Government Contract Accounting

An effective accounting system should distinguish between costs associated with specific contracts and costs supporting the organization as a whole.

We help contractors address:

Direct costs
Indirect costs
Contract/job costing
Labor allocation
Timekeeping
Fringe costs
Overhead
General & administrative expenses
Unallowable costs
Contract profitability
Accounting controls
Financial reporting

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Direct vs. Indirect Costs

Correct cost classification is fundamental to government contract accounting.

Direct costs can generally be identified specifically with a contract or final cost objective.

Indirect costs support multiple contracts or the business as a whole and may need to be accumulated into appropriate cost pools and allocated consistently.

Incorrect classification can distort both contract profitability and indirect rates.

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Indirect Cost Pools & Rates

Depending on the contractor and contract environment, indirect costs may be accumulated into categories such as:

Fringe → Overhead → General & Administrative

We help contractors establish accounting structures that allow these costs to be identified, accumulated, and analyzed.

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Timekeeping & Labor Accounting

Labor is frequently one of the largest costs for government contractors.

An appropriate timekeeping process should support accurate allocation of employee time to contracts, indirect activities, leave, and other cost objectives.

Accounting procedures should also allow labor recorded through timekeeping to reconcile with payroll and the general ledger.

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FAR & DCAA Considerations

Government contractors may encounter requirements associated with the Federal Acquisition Regulation (FAR) and Defense Contract Audit Agency expectations.

While requirements depend on the specific contract and agency, contractors may need accounting processes capable of:

Segregating direct and indirect costs
Tracking costs by contract
Identifying unallowable costs
Supporting labor distribution
Reconciling accounting records
Producing reliable financial reports

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Tax Planning for Government Contractors

We integrate contract accounting with business tax planning.

Areas we may evaluate include:

S corporation taxation
Reasonable compensation
Partnership taxation
Estimated taxes
PTET elections
Retirement contributions
Equipment depreciation
State and multi-state taxation
Research-related tax credits when applicable
Timing of income and expenses

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Business Advisory

Good contract accounting should also help management understand:

Contract profitability
Indirect rate trends
Labor utilization
Cash requirements
Backlog
Hiring capacity
Overhead growth
Business scalability

What We Help You Manage

Direct Costs
Indirect Rates
Timekeeping
Contract Costs
FAR/DCAA Considerations
Payroll
Taxes
Contract Profitability

Frequently Asked Questions

What is the difference between a direct and indirect cost?

A direct cost can generally be identified with a specific contract or cost objective. Indirect costs benefit multiple contracts or the overall business and are allocated using an appropriate methodology.

What are indirect cost pools?

Indirect cost pools accumulate related expenses such as fringe, overhead, or G&A so those costs can be allocated to appropriate contracts or cost objectives.

Does QuickBooks automatically make my company DCAA compliant?

No accounting software by itself guarantees compliance. The configuration of the accounting system and the company's underlying policies, procedures, timekeeping, and controls are important.

Why is timekeeping so important for government contractors?

Labor costs often represent a significant contract expense. Accurate timekeeping helps support proper labor allocation and contract costing.

Can government contractors elect S corporation taxation?

Potentially. The appropriate tax classification depends on ownership, profitability, compensation, state considerations, and other factors.

Can you help determine whether a cost is allowable under a government contract?

We can assist with accounting classification and applicable tax/accounting considerations. Contract-specific allowability may also require review of the FAR, contract terms, or specialized legal/contract guidance.

Services