DCAA Compliance Blog

Your Source for DCAA News and Information for Contractors

ReliAscent® LLC is the only government contract accounting firm that specializes in all aspects of government contracting compliance.  From our DCAA compliant accounting services, to monthly government contract accounting for all government agency awards, contract management & administration, and financial services & planning, our goal is to ensure the success of our clients, and all small business government contractors and grantees.  

In our DCAA Blog, we discuss the latest government contracting news from the Federal Government, the DCAA, and DCMA, as well as promotions offered by ReliAscent, and helpful tools and resources for contractors.

We hope you will visit and take part in the discussions on our blog on a regular basis. If you ever have any questions or would like to discuss how our experts can help, do not hesitate to contact us at any time!  


DCAA Cost Accounting Basics - Costs

Posted by Mike Anderson on Thu, Jul 21, 2011 @ 06:32 PM

Identifying and allocating costs on government jobs is a big part of the government's concern about the contractor's accounting systems.  The Federal Acquisition Regulations (FAR) specify that "Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor’s accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type."  So the first thing you have to ask yourself as a contractor is what does this mean and how can I do this?  The first task is to itemize and segregate all of the organization's costs.  The costs are segregated into what the government terms "direct costs" and "indirect costs".  A direct cost is generally defined as a cost that is specific to the performance of only one contract.  Indirect costs are generally costs that benefit more than one contract (what you would consider Overhead & G&A) .  Next the contractor must evaluate each cost for what the government calls "reasonableness" and "allowability".  Costs are reasonable if they would be incurred by a prudent person in the conduct of competitive business.  Costs are allowable when it is reasonable, allocable, complies with Cost Accounting Standards (if applicable) - otherwise generally accepted accounting principles (GAAP), terms of the contract and are within the limitations of FAR 31.2.  Accounting practices that are inconsistent with FAR part 31.2 will result in unallowable costs.  Each direct cost must be associated with a specific cost objective (government contract).  In addition, each unallowable cost must be identified and withheld from billing to the government either as a direct cost or an indirect cost.  This results in an accounting system that is typically called a "job cost accounting system".  Obviously, the government has thrown a few more requirements into the system which can be added by knowledgeable personnel (with experience in government contracting).  This is part of what Tech BizSolutions does for small businesses. 
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Topics: Cost Accounting, Direct Cost, Indirect Cost, Unallowable Cost, DCAA compliance