Bookkeeping for San Diego defense contractors

Government work changes what the books must show

A small engineering firm or machine shop that wins its first federal subcontract often keeps the same books it used for commercial work. Revenue by customer, expenses by vendor, and one overhead line. That works until the prime asks for a cost proposal, or the contract is cost type or time and materials.

Government contracts care about where each cost belongs. Is it direct to a contract, part of an indirect pool, or unallowable and never billable? The bookkeeping has to answer that for every transaction, not once a year.

What the books track

• Job costing by contract, task order and, where the contract asks for it, contract line item
• Separate cost pools for fringe, overhead and general and administrative expense
• Unallowable costs such as entertainment, alcohol, certain lobbying and some interest coded to their own accounts
• Labor cost from payroll matched to timesheet hours by employee and charge code
• Commercial work kept apart from government work, so it carries its share of indirect costs
• Billings and payments per contract, with a clear schedule of what has been invoiced and what is still open

Unallowable costs belong in their own accounts

The Federal Acquisition Regulation says contractors must identify unallowable costs and keep them out of billings, claims and proposals. FAR 31.201-6 covers how to account for them. The practical answer is a chart of accounts with unallowable lines for each type of cost, so the team holiday party never ends up in the overhead pool.

This is easy to set up early and painful to fix later. Splitting a year of mixed meals and travel after the fact means reading every receipt.

Timekeeping is where most problems start

Labor is usually the biggest cost on a services contract. Employees record hours each day against a charge code, including hours on overhead, proposals and leave. Payroll is then booked to the same codes.

Each pay period, the bookkeeper checks that total timesheet hours match the payroll register and that every hour landed on a valid code. Gaps get flagged that week, not found during a review a year later.

Books your contracts accountant can work from

DCAA publishes a pre-award checklist of what an adequate accounting system looks like, including separating direct, indirect and unallowable costs and accumulating costs by contract. Meeting those standards is a judgment for your accountant and the auditors.

The bookkeeping role is narrower and still important. Close the books monthly, keep job costing current, reconcile every account and keep support for each entry. Your accountant then calculates indirect rates, prepares proposals and builds the incurred cost submission from clean data.

This page describes bookkeeping only. It is not DCAA audit support or a compliance review.

How the monthly close runs

1. Collect Bank and card feeds, payroll registers, timesheet exports and vendor bills come in.
2. Code Each cost is coded to a contract, an indirect pool or an unallowable account.
3. Tie out Timesheet hours are matched to payroll, and every bank and card account is reconciled.
4. Report You get a P&L, a balance sheet, cost by contract and pool totals for your accountant.

Signs your books are not ready for government work

• Overhead is one expense account with everything in it
• Timesheets are filled in weekly from memory
• Meals and entertainment are coded to travel
• Nobody can say what a single contract cost to date
• Commercial and government jobs share one job code

Where we work

We keep books for businesses across the City of San Diego, North County, the South Bay and East County.

• Carlsbad
• Chula Vista
• Downtown San Diego
• El Cajon
• Encinitas
• Escondido
• La Mesa
• Oceanside
• San Diego
• San Marcos
• Vista

Questions