1.
Laying the Foundation of Government Contract
Accounting
Moderator: Karen Buniak
Speakers:
• Robert Jones, Government Contracts & Accounting Expert, Left Brain
Professionals
• Melissa Metzger, Government Accounting & Finance Advisor, Left Brain
Professionals

2.
Robert E. Jones
CPA, CPCM, NCMA Fellow
SPEAKER
Melissa Metzger
MAFM, CPA Candidate

3.
Learning Objectives
• List the basic principles and regulations for government contract
accounting.
• Explain the importance of segregating direct & indirect costs.
• Describe cost pools.
• Draft basic govcon chart of accounts.

4.
Basic Regulations

5.
Generally Accepted Accounting Principles (GAAP)
Economic Entity Principle
The activities of a business must be kept separate from the financial activities
of its business owners.
Cont…

6.
GAAP, Continued…
Monetary Unit Principle
Only transactions in U.S. dollar amounts can be included in accounting
records and the effects of inflation are ignored on recorded dollar amounts.
Cont…

7.
GAAP, Continued…
Time Period Principle
Business activities may be reported in short, distinct time intervals which may
be weeks, months, quarters, a calendar year or fiscal year.
(Interval must be identified in the headings of the financial statement.)
Cont…

8.
GAAP, Continued…
Cost Principle
Requires the assets be recorded at the cash amount (or the equivalent) at
the time that an asset is acquired.
Cont…

9.
GAAP, Continued…
Full Disclosure Principle
Requires information pertinent to an investing or lending decision to be
included in the content of the financial statements or in the notes of the
statements.
Cont…

10.
GAAP, Continued…
Going Concern Principle
Refers to the intent of a business to carry on its operations and commitments
into the foreseeable future and not to liquidate the business.
Cont…

11.
GAAP, Continued…
Matching Principle
Requires that businesses use the accrual basis of accounting and match
business income to business expenses in a given time period.
Cont…

12.
GAAP, Continued…
Revenue Recognition Principle
Under the accrual basis of accounting, the revenues must be reported on the
income statement in the period in which it is earned, regardless of whether
the money is received or not.
Cont…

13.
GAAP, Continued…
Materiality Principle
Refers to the misstatement in the accounting records when the amount is
insignificant or immaterial.
Because of the materiality principle, financial statements usually show
amounts rounded to the nearest dollar.
Cont…

14.
GAAP, Continued…
Conservatism Principle
Requires accountants who are unsure about how to report an item, to
recognize the potential expenses and liabilities immediately, anticipating
losses and choosing the alternative that will result in a lesser net income
and/or a lesser asset amount.

15.
Federal Acquisition Regulations (FAR) & Supplements
Unique set of regulations that apply to the acquisition of supplies and
services by the U.S. government. Codified at 48 CFR Chapter 1.
Some sections apply to accounting policies and cost and pricing procedures.

16.
Cost Accounting Standards
A set of requirements designed to level the playing field of all government
contractors by defining treatment of certain types of costs.

17.
Segregating Costs

18.
Direct Costs Drive Indirect Rates
Government only wants to pay for their own direct costs and fair portion of
indirect costs.

19.
Direct Costs are the Base of Other Pools
They’re part of the calculation of indirect rates – Fringe, Overhead, G&A, and
Material & Subcontract Handling.

20.
Costs Must Receive Consistent Treatment
One direct or indirect, always the same (CAS 401 & 402).

21.
Cost Pools

22.
Direct
Costs directly attributable to an end cost objective such as contract,
job/project, or product/service.

23.
Fringe
Costs to maintain W-2 employee.
• Employer taxes
• Paid absences
• Health insurance
• Retirement

24.
Overhead
Costs to support customers and products or services. Costs not directly
attributable to an end cost objective.
• Product support
• Idle time
• Training
• Facilities
• Equipment

25.
G&A
Costs to run the business regardless of number of customers.
• Business development
• Marketing
• Accounting
• Human resources
• IT

26.
Unallowable
Costs not necessary to deliver products or services to the federal government
(FAR 31).
• Alcohol
• Interest and finance charges
• Charitable contributions

27.
Chart of Accounts

28.
Unallowable
Costs not necessary to deliver products or services to the federal government
(FAR 31).
• Alcohol
• Interest and finance charges
• Charitable contributions

29.
Chart of Accounts

30.
Foundation
• General ledger accounts are the foundation of your accounting system.
• All transactions, reports, and policies and procedures revolve around thir
final location in your books.
Cont…

31.
Foundation, Continued…
• Individual accounts must be homogenous (containing only one kind of
expense).
• Each cost pool must be homogenous (containing only one kind of cost).

32.
Industry-Accepted Best Practice for Numbering
1xxx Asset
2xxx Liabilities
3xxx Capital/Equity
4xxx Revenue
5xxx Diret/Costs of Goods Sold (COGS)
7xxx Overhead
8xxx G&A
9xxx Unallowable

33.
Building on the Foundation
Accounting in Government contracting has its own unique and specialized
rules, regulations, standards, problems, hurdles. Compliant accounting
systems that provides meaningful information require solid foundations built
on principles, regulations, and industry best practices. With basic structure
in place, it’s easy to grow and add new accounts.

34.
Q&A AND FEEDBACK
Robert Jones
Robert@LeftBrainPro.com
Melissa Metzger
Melissa@LeftBrainPro.com