Accounting Policy & Practice Series

Cost Accounting Principles for Federal Contracts

 

Portfolio Description

Portfolio 5300, Cost Accounting Principles for Federal Contracts, should serve as a comprehensive, easy to understand, reference for any contractor, or prospective contractor, required to compute contract costs in accordance with the FAR Cost Principles for Commercial Organizations.

Organizations that perform, or wish to bid on, federal government contracts are subject to numerous provisions of the Federal Acquisition Regulations, or FAR. Of particular importance and complexity are those provisions that govern how the actual or estimated contract costs of federal contracts are to be computed. This Portfolio provides detailed guidance in this regard.

The FAR Cost Principles discussed in this Portfolio include both general cost principles and specific cost principles for "selected costs." These cost principles specifically apply to commercial organizations and also may apply by reference in whole or in part to other organizations. The general cost principles govern such matters as the allocability and the allowability of contract costs, the distinction between allocability and allowability, and the difference between direct and indirect costs.

In addition to the general cost principles in the FAR, 47 specific cost principles apply to "selected costs." The selected costs include such items as compensation for personal services, the cost of money, depreciation, idle facilities, independent research and development, material costs, selling costs, and travel. The FAR Cost Principles and this Portfolio also set forth certain selected costs which are categorically unallowable as a cost of federal Government contracts, such as certain advertising costs, contributions or donations, entertainment costs, fines and penalties, interest, goodwill, and certain legal costs.

The Portfolio explains the difference between the FAR Cost Principles, which are applicable to most contractors, and the federal Cost Accounting Standards, which are applicable only to large contractors. This Portfolio summarizes each of the 19 Cost Accounting Standards, which are anticipated to be analyzed in a separate Portfolio.

This Portfolio may be cited as BNA Tax and Accounting Portfolio 5300, Bodenheimer, Cost Accounting Principles for Federal Contracts (Accounting Policy and Practice Series).

Bertold Bodenheimer, CPA, B.S., University of Maryland, practices accounting with Caldwell & Bodenheimer, LLC, providing consulting services to government contractors and government agencies on cost accounting issues. Mr. Bodenheimer frequently serves as an expert witness in contract cost litigation.