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. Government contractors are subject to a wide range of unique accounting regulations, entering into contracts for which negotiation, performance, termination, and more require following specific accounting principles and standards. And, dealing with the Federal Government can be difficult and complex. Unless a proper accounting system is in place, then a contractor can be faced with enormous difficulties, not the least of which is lost profits, lost contracts.

1. Lay the Foundation
of Government
Contract Accounting

2. We Know Government
Contracts

3. Who we are
Left Brain Professionals is a boutique accounting firm that serves
government contractors. We specialize in accounting system design
& implementation, audit support, training, and cybersecurity
compliance.

4. Our Services

5. Our Team
Robert E. Jones
Government Contracts &
Accounting Expert
CPA, CPCM, NCMA Fellow
Melissa Metzger
Government Accounting &
Finance Advisor
MAFM, CPA Candidate
Steven Bressler
Government Contract
Associate
steve@LeftBrainPro.commelissa@LeftBrainPro.comrobert@LeftBrainPro.com

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

7. Basic Regulations

8. 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…

9. Generally Accepted Accounting
Principles (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…

10. Generally Accepted Accounting
Principles (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…

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

12. Generally Accepted Accounting
Principles (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 to the statements.
Cont…

13. Generally Accepted Accounting
Principles (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…

14. Generally Accepted Accounting
Principles (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…

15. Generally Accepted Accounting
Principles (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…

16. Generally Accepted Accounting
Principles (GAAP), Continued…
Materiality Principle
Refers to the misstatement in
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…

17. Generally Accepted Accounting
Principles (GAAP), Continued…
Conservatism Principle
Requires accountants who are unsure about how to
report an item, to recognize 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.

18. 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.

19. Cost Accounting Standards (CAS)
A set of requirements designed to
level the playing field of all
government contractors by
defining treatment of certain
types of costs.
We’ll cover this topic in greater detail in a future webinar.

20. Room Poll
Which of the following is not 1 of the 10 principles of GAAP?
A. Revenue Recognition
B. Monetary Unit
C. Conservatism
D. Accuracy

21. Segregating Costs

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

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

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

25. Room Poll
What’s the number one reason for segregating direct and indirect
costs?
A. Because Robert said so
B. The government only wants to pay for their direct costs
C. It’s 1 of the 10 principles of GAAP
D. Required by the IRS

26. Cost Pools

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

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

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

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

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

32. Other cost pools will be addressed in our upcoming
webinars Fundamentals of Indirect Rates (May 26)
and Advanced Indirect Rates (June 16).
Details to register coming soon!
Intermediate

33. Room Poll
Government contractors can have as many cost pools as
they want.
True
False

34. Chart of Accounts

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

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

37. 1xxx Asset
2xxx Liabilities
3xxx Capital/Equity
Industry-Accepted Best Practice for
Numbering
4xxx Revenue
5xxx Direct/Costs of Goods
Sold (COGS)
6xxx Fringe
7xxx Overhead
8xxx G&A
9xxx Unallowable and Other

38. With the basic structure in place, it’s easy to grow and
add new accounts
Building on the Foundation

39. Room Poll
How much help do you need building your government contract
chart of accounts?
A. None, we’re experts
B. Needs a few tweaks
C. Help, we’re drowning
D. I don’t know

40. Connect
with us
Download the presentation
Left Brain
Professionals Inc.
@LeftBrainPro
@LeftBrainPro
Email us
support@LeftBrainPro.com
www.LeftBrainPro.com/presentations

41. For information on our upcoming webinars, visit us at
LeftBrainPro.com/events for more details.