GovCon Bookkeeping Glossary

The federal grant cost principles, formally titled "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards." Applies to grants, cooperative agreements, and most SBIR Phase II awards. Differs from FAR Part 31 in indirect rate methodology (de minimis 10% rate, federally negotiated rate, modified total direct cost base). Contractors with both grants and contracts must run two cost regimes simultaneously.

A DCAA evaluation of whether a contractor's accounting system meets the 18 adequacy criteria in DFARS 252.242-7006. The audit tests cost segregation, timekeeping, job costing, indirect rate allocation, and unallowable cost identification. A system found inadequate triggers payment withholding and requires a corrective action plan.

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash changes hands. DCAA requires accrual-basis accounting for cost-type government contracts. Contractors must accrue costs as incurred, not when paid. Cash-basis accounting does not satisfy FAR requirements.

A contracting officer responsible for administering existing contracts after award. The ACO establishes provisional billing rates, approves accounting system adequacy, negotiates final indirect rates, and authorizes quick-closeout. The ACO also issues material weakness determinations and monitors corrective action plans.

One of the three tests a cost must pass to be charged to a government contract. A cost is allocable if it benefits the contract being charged. Costs benefiting multiple contracts must be allocated proportionally using a consistent, documented methodology. A cost that benefits Contract A cannot be charged to Contract B.

The denominator used to calculate an indirect rate. Common bases include direct labor dollars (for overhead), total labor (for fringe), and total cost input (for G&A). The choice of allocation base must be consistent, documented, and reflect the beneficial or causal relationship between the indirect pool and the contracts it supports.

A cost the government permits contractors to charge on government contracts. To be allowable, a cost must pass three tests under FAR 31.201-2: it is permitted by FAR, contract terms, and applicable CAS (allowability); it benefits the contract charged (allocability); and a prudent business person would incur it at that amount (reasonableness).

A GAAP standard (FASB Topic 606) governing how contractors recognize revenue from customer contracts. Government contractors apply ASC 606 alongside FAR cost principles: GAAP determines book revenue timing while FAR governs cost allowability. Multi-year contracts with annual appropriations often fail ASC 606 Step 1 (enforceable contract with collectible consideration) on unfunded option years, creating GAAP-FAR reconciliation issues at year-end close.

Costs incurred preparing, submitting, or supporting bids and proposals on potential contracts. Governed by FAR 31.205-18 and CAS 420. B&P costs are allowable indirect expenses but must be tracked separately from IR&D and from direct contract work. Allocated through the G&A pool. Most small contractors under-track B&P, missing legitimate indirect costs that would reduce their G&A rate competitiveness.

A simplified procurement vehicle (FAR 13.303) allowing repeat purchases of supplies or services from approved vendors at pre-negotiated terms. BPAs are not contracts themselves; individual orders against the BPA become the contracts. Common for IT, professional services, and recurring supplies. Single-award BPAs run up to five years; multiple-award BPAs can extend longer.

Cost Accounting Standards. A set of 19 standards governing how contractors estimate, accumulate, and report costs on CAS-covered government contracts. Administered by the CAS Board. Modified CAS coverage (CAS 401, 402, 405, 406) applies to contracts above $2.5 million. Full CAS coverage applies to single contracts above $50 million.

Consistency in Estimating, Accumulating, and Reporting Costs. Requires contractors to use the same cost accounting practices for estimating costs in proposals, accumulating costs during performance, and reporting costs in incurred cost submissions. A contractor who estimates overhead using one method but accumulates it using another violates CAS 401.

Consistency in Allocating Costs Incurred for the Same Purpose. Requires that costs charged directly to one contract cannot be allocated indirectly to other contracts for the same purpose. If engineering labor is a direct cost on Contract A, similar engineering labor cannot be an indirect cost allocated across all contracts.

Allocation of Home Office Expenses to Segments. Establishes criteria for allocating costs from a company's home office to its operating segments. Requires that allocation methods reflect the beneficial or causal relationship between the home office costs and the segments receiving the allocation.

Capitalization of Tangible Assets. Requires contractors to establish and consistently follow policies for capitalizing tangible assets. Sets rules for when acquired assets are recorded as capital items versus expensed. CAS Board proposed eliminating CAS 404 in favor of GAAP (ASC standards) in September 2025.

Accounting for Unallowable Costs. Requires contractors to identify and exclude unallowable costs from any billing, cost claim, or indirect rate calculation submitted to the government. Unallowable costs must be coded at the point of entry, not discovered during year-end close or audit preparation.

Cost Accounting Period. Requires contractors to use their fiscal year as the cost accounting period for accumulating and reporting costs. Ensures consistency in the time periods used for estimating, accumulating, and reporting costs across all government contracts.

Accounting for Compensated Personal Absence. Establishes methods for accruing vacation, sick leave, and other paid time off. Requires consistent measurement and allocation of these costs. CAS Board proposed eliminating CAS 408 in favor of GAAP (ASC 710) in September 2025.

Depreciation of Tangible Capital Assets. Requires contractors to use consistent, documented methods for depreciating capital assets charged to government contracts. Specifies rules for useful life determination and depreciation methodology. CAS Board proposed eliminating CAS 409 in favor of GAAP in September 2025.

Allocation of Business Unit G&A Expenses. Requires G&A expenses to be allocated to final cost objectives using a base that represents total activity of the business unit. The base must include all significant activities that benefit from G&A (contract work, B&P, IR&D). Prevents contractors from excluding activities to manipulate G&A rates.

Cost of Money as an Element of the Cost of Facilities Capital. Establishes the method for calculating Facilities Capital Cost of Money (FCCM), an imputed cost representing the contractor's investment in facilities used for government work. FCCM is an allowable contract cost calculated using Treasury rates applied to the net book value of facilities capital.

Allocation of Direct and Indirect Costs. Requires that indirect cost pools be homogeneous and that allocation bases reflect the beneficial or causal relationship between the pool and the cost objectives. Governs the choice of allocation bases for fringe, overhead, and G&A rates.

A standardized form describing a contractor's cost accounting practices, filed with the cognizant federal agency. The DS-1 covers cost classification, indirect pool structure, allocation bases, depreciation methods, and pension treatment. Required when a single CAS-covered contract reaches $50 million or cumulative net CAS-covered awards exceed $50 million. Once filed, practices disclosed become binding commitments.

Cost and pricing information a contractor certifies as 'accurate, complete, and current' when required by TINA for proposals above the threshold ($10 million after June 30, 2026). The certification creates legal liability: defective data triggers price reductions under the defective pricing clause and potential False Claims Act exposure.

The organized list of all accounts in a contractor's accounting system. A GovCon chart of accounts must cleanly separate direct costs by contract, indirect cost pools (fringe, overhead, G&A), and unallowable costs in dedicated accounts. The structure differs significantly from a standard commercial chart of accounts.

A QuickBooks feature used by government contractors to categorize transactions by cost pool or cost type. Common classes include fringe, overhead, G&A, unallowable, and direct by contract. Class tracking enables indirect rate calculation by separating costs into the correct pools for allocation.

A unique identifier for each deliverable or service within a government contract. CLINs organize contract pricing and track costs at the deliverable level. The accounting system must trace direct costs to specific CLINs when the contract requires line-item cost tracking.

A DoD cybersecurity certification program requiring contractors handling Controlled Unclassified Information to meet specific security standards. Phase 1 self-assessment enforcement began November 2025 and remains in force. DoD suspended Phase 2, the third-party assessment requirement scheduled for November 2026, on July 13, 2026 (CIO memo 26-P-1023), pending a 60-day review. Compliance costs ($50K-$200K for small businesses) are legitimate indirect costs when required by contract.

The government agency responsible for overseeing a contractor's accounting and business systems, typically the agency with the largest dollar volume of contracts with that contractor. The cognizant agency assigns the DCAA audit office, reviews disclosure statements, and negotiates final indirect rates.

The annual per-employee limit on compensation the government reimburses on covered contracts, set by FAR 31.205-6(p). The latest published figure is $671,000 for CY2025 [DCAA Memorandum 24-PSP-009(R)]. No CY2026 cap has been published. Figures near $695,000 circulating for 2026 are third-party projections from the BLS Employment Cost Index, not government-issued numbers, so use the published CY2025 cap until OFPP issues CY2026. The cap applies to all contractor employees on contracts awarded after June 24, 2014. Compensation above the cap is unallowable and must be excluded from indirect cost pools.

The FAR 31.205-6 requirement that employee compensation charged to government contracts must be reasonable for the work performed and the labor market. DCAA benchmarks contractor pay against Bureau of Labor Statistics data and the contractor's written compensation policy. Executive compensation exceeding FAR caps or lacking documented criteria triggers audit findings.

DCAA's official audit procedures handbook. The DCAM provides step-by-step guidance auditors follow when conducting accounting system reviews, incurred cost audits, forward pricing audits, and other engagement types. Contractors use the DCAM to understand what DCAA tests and prepare accordingly. Chapter 9 covers forward pricing audits.

The administrative process of finalizing a completed government contract. FFP contracts close within 6 months of physical completion. Cost-type and T&M contracts allow up to 36 months because indirect rates must be audited and settled first. Closeout requires final invoicing, release of claims, property disposition, and deobligation of excess funds (FAR 4.804).

The government official authorized to enter into, administer, and terminate government contracts. The contracting officer makes final decisions on cost allowability, rate settlements, and contract modifications. Contracting officers are the only government representatives authorized to obligate the government financially.

Six systems the DoD evaluates for adequacy under DFARS: accounting, estimating, EVMS (Earned Value Management), MMAS (Material Management and Accounting), property, and purchasing. A material weakness in any system triggers up to 5% payment withholding. Total withholding across all six systems is capped at 10%.

Property purchased by the contractor using government contract funds, with title vesting in the government upon acquisition. CAP flows through the contractor's books as a direct contract cost. The contractor must track it in a separate property management system because the government owns it despite the contractor purchasing it.

A structured document a contractor submits after a DCAA accounting system audit identifies material weaknesses. The CAP addresses each finding with root cause analysis, specific corrective actions, responsible parties, milestone dates, and evidence of completion. Submitting an acceptable CAP within 45 days reduces payment withholding from 5% to 2%.

A grouping of indirect costs that share a common allocation base and serve a similar function. Standard cost pools for government contractors include fringe, overhead, and G&A. Costs within a pool must be homogeneous, meaning they benefit the same set of cost objectives in roughly the same proportion.

A certified financial document submitted in response to a government solicitation, built from the contractor's accounting system and governed by FAR 15.408 Table 15-2. Includes six cost elements: direct labor, materials, subcontracts, other direct costs, indirect rates, and fee. Every number must trace back to accounting records or documented projections.

A government contract type where the government reimburses the contractor for all allowable costs incurred plus a fee. Subtypes include Cost-Plus-Fixed-Fee (CPFF), Cost-Plus-Incentive-Fee (CPIF), and Cost-Plus-Award-Fee (CPAF). CR contracts require full DCAA-compliant accounting, daily timekeeping, and annual incurred cost submissions.

A bookkeeping service model where a Certified Public Accountant oversees the entire accounting system, from chart of accounts structure to indirect rate calculations to audit preparation. Differs from standard bookkeeping by adding professional judgment on cost classification, FAR compliance, and DCAA readiness. Critical for government contractors.

Government-created or government-owned information requiring safeguarding under federal regulations but not classified. Contract values, labor rates, indirect rate calculations, and cost data stored in contractor accounting systems often qualify as CUI on defense contracts. Handling CUI triggers CMMC Level 2 requirements.

Commercial and Government Entity Code. A five-character alphanumeric identifier assigned by the Defense Logistics Agency to every contractor doing business with the federal government. Required for all contract awards and SAM.gov registrations. CAGE codes are free to obtain. Foreign contractors receive NCAGE codes (NATO CAGE) through their home country defense ministries.

Composition and Measurement of Pension Cost. Establishes the components of pension cost (normal cost, prior service cost, actuarial gains and losses, interest) and the methods for measuring each. Applies to defined benefit and defined contribution plans. Required for CAS-covered contracts; pension costs charged to contracts must be measured using CAS 412 methodology even when GAAP allows alternative approaches.

Adjustment and Allocation of Pension Cost. Governs how contractors handle pension plan terminations, segment closings, and changes in cost accounting practice for pension purposes. Triggers segment closing adjustments when significant operations are sold, transferred, or shut down. Critical for M&A transactions involving CAS-covered contractors.

Accounting for the Cost of Deferred Compensation. Establishes when deferred compensation costs are allocable to contracts and how to measure them. Generally requires accrual when the obligation becomes irrevocable and measurement at present value. Applies to bonus plans, stock options, and similar arrangements that defer payment beyond the period of service.

Accounting for Insurance Costs. Establishes when insurance costs are allocable to contracts and how self-insurance reserves are treated. Distinguishes purchased insurance (allowable as paid) from self-insurance (allowable based on actuarial measurement). Captives and risk retention groups receive specialized treatment under CAS 416.

Cost of Money as an Element of the Cost of Capital Assets Under Construction. Allows contractors to charge an imputed cost of money on capital assets being constructed or developed for use on government contracts. Calculated using Treasury rates applied to the average net book value of the asset during construction. Companion to CAS 414, which covers FCCM on completed assets.

Accounting for Independent Research and Development (IR&D) and Bid and Proposal (B&P) Costs. Requires IR&D and B&P to be accumulated separately from direct contract work and allocated through the G&A pool. Establishes the boundary between IR&D (general technical research) and direct R&D (contract-specific). Critical for technology contractors who must distinguish allowable IR&D from unallowable advertising or commercial product development.

A FAR or DFARS deviation that applies to multiple contracts or contracting activities for a defined period. Issued by the agency head when a class of contracts requires modified terms, when statutory deadlines force interim regulation, or when emergency procurement conditions exist. The 2026 FAR Part 42 deviation issued by DoD in January 2026 is a current example. Individual deviations cover only a single contract.

Temporary federal appropriations legislation that funds the government when full-year appropriations have not passed. Government contractors operating during a CR face funding caps, restricted new starts, and limited above-prior-year spending. Contracts with options or annual funding lines may pause or modify scope until full appropriations pass. Affects revenue recognition timing on cost-reimbursable and IDIQ contracts.

A cost-reimbursable contract type where the government pays allowable costs plus a base fee plus an award fee determined by performance against agreed criteria. Award fee is paid in periodic installments (often quarterly or annually) based on a fee determining official's subjective evaluation. CPAF requires DCAA-compliant accounting plus performance tracking systems aligned with award fee criteria.

A cost-reimbursable contract type where the government pays allowable costs plus a fixed fee that does not vary with actual costs. Fee is established at contract award based on estimated cost and remains fixed even if costs rise or fall. CPFF is the most common cost-type vehicle for research, development, and uncertain-scope work. Requires full DCAA-compliant accounting and annual incurred cost submissions.

A cost-reimbursable contract type where the government pays allowable costs plus a fee that adjusts based on a cost-sharing formula. Final fee depends on the relationship between target cost and actual cost: under-running target increases fee, over-running decreases it (within specified minimum and maximum). Used when cost performance can be objectively measured and the contractor can influence outcomes.

Federal law (40 U.S.C. 3141-3148) requiring prevailing wages on federal construction contracts over $2,000. Covers building, alteration, and repair of public works. Mutually exclusive with the Service Contract Act: a contract falls under one or the other, not both. Wage determinations are published on SAM.gov.

Defense Contract Audit Agency. The federal agency that audits government contractor accounting systems, indirect rates, incurred costs, and forward pricing proposals. DCAA protects the government's financial interests by verifying contractors charge only allowable, allocable, and reasonable costs. DCAA conducts thousands of audits annually and reports questioned costs to contracting officers.

A publicly available checklist at dcaa.mil that DCAA uses to screen incurred cost submissions before substantive audit begins. An ICS that fails the adequacy check is returned for correction. Contractors who use the checklist as a final QA gate before filing have lower rejection rates.

A formal examination of a government contractor's financial records, accounting system, or cost claims by the Defense Contract Audit Agency. Common audit types include pre-award audits, accounting system audits, incurred cost audits, and floor checks. Audit findings result in questioned costs, corrective action requirements, or payment withholding.

Electronic timekeeping systems that meet DCAA requirements for daily employee time entry, supervisor approval, audit trail for corrections, and project-level charge coding. Examples include QuickBooks Time (formerly TSheets), Hour Timesheet, Unanet, and PROCAS. Spreadsheet-based systems create significant audit risk.

The DoD agency responsible for contract administration, including property system audits (DFARS 252.245-7003), purchasing system reviews (DFARS 252.244-7001), and contract closeout management. DCMA works alongside DCAA but focuses on contract administration rather than financial auditing.

Contract Completion Statement. A DoD form required for contract closeout documentation. Confirms the contract is physically complete and identifies remaining administrative actions. Missing this form pauses the entire closeout process.

A rate adjustment DCAA applies unilaterally when a contractor fails to submit an adequate incurred cost submission on time. The decrement factor typically reduces billable indirect rates, almost never in the contractor's favor. Filing the ICS within six months of fiscal year end avoids this penalty.

A finding that a contractor submitted cost or pricing data that was not accurate, complete, or current as certified under TINA. Results in a mandatory government price reduction equal to the overstatement plus interest. Willful defective pricing triggers False Claims Act investigation with treble damages.

The industry-standard ERP system for large government contractors, typically serving firms with $50 million or more in revenue. Provides full cost accounting, project management, timekeeping, purchasing, and government compliance features including automated business system reporting and EVMS support.

Defense Federal Acquisition Regulation Supplement. Additional acquisition regulations specific to Department of Defense contracts. DFARS supplements the FAR with DoD-specific requirements including business system adequacy criteria (DFARS 252.242-7006), cybersecurity requirements, and accounting system administration rules.

The Defense Federal