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Cost Accounting System


The Code of Federal Regulations (CFR) Title 48 Chapter 2 Subchapter G Part 242.70 – Contractor Business Systems states that acceptable contractor business systems are defined in the clause at Defense Federal Acquisition Regulation Supplement (DFARS) Part 252.242-7005 – Contractor Business Systems.

DFARS Part 252.242.7006 specifically covers accounting system administration.  The following lists the criteria for an adequate cost accounting system:

  1. Provides a sound internal control environment, accounting framework, and organizational structure
  2. Properly segregates direct and indirect costs
  3. Identifies and accumulates direct costs by contract
  4. Delivers a logical and consistent method for accumulating and allocating indirect costs to intermediate and final cost objectives
  5. Accumulates costs under general ledger control
  6. Reconciles subsidiary cost ledgers and cost objectives to general ledger
  7. Requires the approval and documentation of adjusting entries
  8. Ensures compliance with established policies, procedures, and accounting practices through management reviews or internal audits of the system
  9. Includes a timekeeping system that identifies employee labor by intermediate or final cost objectives
  10. Incorporates a labor distribution system that charges direct and indirect labor to the appropriate cost objectives
  11. Determines costs charged to contracts through at least monthly interim routine posting of books of account
  12. Excludes costs not allowed by FAR Part 31 and other contract provisions from being charged to Government contracts
  13. Identifies costs by Contract Line Item Number (CLIN) and by units as if each unit or CLIN were a separate contract where required by the contract
  14. Segregates preproduction costs from production costs where applicable
  15. Provides cost accounting information as required by contract clauses concerning limitation of cost (FAR Part 52.232-20), limitation of funds (FAR Part 52.232-22), or allowable cost and payment (FAR Part 52.216-7), and to readily calculate indirect cost rates from the books of accounts
  16. Reconciles billings to the cost accounts for both current and cumulative amounts claimed and complies with contract terms
  17. Produces adequate and reliable data for use in pricing follow-on acquisitions
  18. Furnishes accounting practices in accordance with Cost Accounting Standards Board (CASB) standards, if applicable, otherwise Generally Accepted Accounting Principles (GAAP)
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