Understanding the DCAA Chart of Accounts: A Complete Guide

If you’re a government contractor, you already know how serious things can get when it comes to tracking money. That’s where the DCAA Chart of Accounts comes into play. Whether you’re new to the world of government contracts or have been around for years, setting up your accounting system the right way is not just a good idea — it’s a must. This guide is here to help you understand how it works, why it matters, and how to keep your business on the right side of compliance.

Let’s break it all down together.

What is the DCAA Chart of Accounts?

A DCAA Chart of Accounts (COA) is basically a list that organizes every account your business uses to track money—like income, expenses, assets, and liabilities. Think of it as a roadmap for your company’s finances.

Now, when it comes to working with the Defense Contract Audit Agency (DCAA), this chart becomes even more important. A DCAA-compliant COA isn’t just a list—it’s a structure that follows strict rules for how you record and report financial information.

Unlike regular accounting for the private sector, the DCAA COA follows government rules like the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS). These rules exist to make sure that the government only pays for what it should—no more, no less.

So, if you’re hoping to win (or keep) a government contract, understanding and using a DCAA-compliant Chart of Accounts isn’t optional—it’s required.

Key Components of a DCAA-Compliant Chart of Accounts

Here’s what your chart needs to include if you want to stay on the DCAA’s good side:

Direct Costs

These are costs you can link directly to a specific project or contract—like materials, labor, or subcontractors. If you’re building something for the government, these are the costs they expect to see clearly tracked.

Indirect Costs

These are the overhead (business) costs that support your business as a whole—think rent, office supplies, or payroll tax. You’ll usually split these into categories like:

• Overhead
• General and Administrative (G&A)
• Fringe (employee benefits)

Unallowable Costs

The government doesn’t pay for everything. Some costs—like alcohol, entertainment, or certain advertising—are off-limits. You need to track these separately to avoid problems during an audit.

By organizing your COA around these categories, you’re building a system that supports accuracy and precision, helps with your income statement, and keeps your financial reporting squeaky clean.

Why is a DCAA-Compliant COA Important?

Let’s face it—mistakes in accounting don’t just look bad. They can cost you real money or even your contract.

Compliance with Federal Acquisition Regulations (FAR) and CAS

Following FAR Part 31 and Cost Accounting Standards isn’t just a checkbox. These rules control how you should treat expenses, split between direct and indirect costs, and manage your general ledger.

If your COA isn’t set up right, the DCAA will spot it during an audit—and that can lead to serious consequences, from disallowed costs to being flagged for non-compliance.

Avoiding Cost Disallowances and Penalties

You forget to mark an unallowable expense, and it gets billed to the government. Later, the DCAA finds it during an audit. You don’t just have to pay it back—you might face fines or lose out on future opportunities.

Many businesses have lost out because they didn’t know how to properly track payroll, labor hours, or employee benefits. A clean COA helps avoid these traps.

Facilitating Smooth DCAA Audits

A neat and logical COA helps DCAA auditors do their job quickly and without red flags. The cleaner your data, the faster the process—and the better your chances of passing with no findings.

How to Set Up a DCAA-Compliant Chart of Accounts

You don’t need to be a Certified Public Accountant to do this. But you do need to understand the structure. Here’s how to get started:

Step-by-Step Guide to Structuring Your COA

Identify Cost Categories

Break down your spending by project:

• Direct Costs: Labor, materials, subcontractors.
• Indirect Costs: Overhead, G&A, and fringe.
• Unallowable Costs: Travel perks, fines, alcohol, etc.

Define Account Codes & Numbering System

Use a simple, logical format:

• 1000–1999: Assets
• 2000–2999: Liabilities
• 5000–5999: Expenses

Use different codes for payroll, subcontractors, and employee benefits.

Separate Allowable vs. Unallowable Costs

Clearly label unallowable expenses (FAR 31.205) so they’re easy to spot.

Implement Consistency Across Projects

Use the same structure across all contracts. This keeps your books tidy and your financial services team happy.