Step 6: AP and Expense Reports

meets the following DCAA Requirements:

  • Proper segregation of direct costs from indirect costs
  • Accounting system is in accordance with GAAP
  • Exclusion from costs not allowable under FAR 31

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Download free excel expense report - click here.

Synopsis

The proper use of the Enter Bills screen is reviewed. I discuss prepaid accounts, accrued expenses and how to post accounts payable to the proper period.  Entering expense reports into Quickbooks is discussed and a sample expense report is provided in excel format which complies with Joint and Federal Travel Regulations. We discuss receipts requirements and per diem rules and visit the GSA website for per diem rates.  A web-based DCAA compliant expense system is recommended.

Accounts Payable and DCAA Compliance

You will need to keep your books on an accrual basis, rather than a cash basis, to be DCAA compliant.  Accrual basis means that expenses are recorded when incurred rather than when paid (cash basis). An expense is incurred when it is consumed by the business.  For instance, you may hire a subcontractor to perform services in the month of January, but may pay the subcontractor for those services in the month of February.  Accrual basis accounting records the expense in January, the month in which the expenses were incurred.

In Quickbooks, you will use the Enter Bills screen to record an expense on an accrual basis. In the date field, enter the date that the expense was incurred, not the date of the vendor invoice.  This is important because this date field controls the period in which the expense will be recorded which, on an accrual basis, should be the date that service was delivered or the product consumed.  Then, when you actually pay the bill, you'll apply the payment against the open vendor bill and date the payment on the actual date that you pay the bill.

Quickbooks also allows you to enter a Check directly in the accounting system, bypassing the vendor module.  This method will only work for accrual based accounting if in fact the expense was incurred within the same month as the payment date.

Prepaid Expenses

Another accrual-based accounting concept important for DCAA compliance is prepaid expense, which is and expense that is paid before the service is delivered or the product consumed. Typical examples of prepaid expenses are rent and medical insurance premiums, which are normally paid in the month prior to when the expense is incurred.

To enter a prepaid expense in Quickbooks, enter a Bill and set the date to the date in which the expense will paid.  In the expense tab, select the Prepaid Expense account, which will debit this asset account.  Pay the Bill like any other Bill.  Next, in the month in which the Prepaid Expense should be expensed, which is typically the next month or later, use a General Journal Entry to credit the Prepaid Expense account and to debit the appropriate expense account.

ACCRUED EXPENSES

Accrued expenses, on the other hand, are expenses incurred before they are paid.  An example would be a 1099 subcontractor providing services in the month of January. for instance, yet when you attempt to close the month you find that the 1099 is tardy in sending you a vendor invoice. Without a vendor invoice you are unable to enter the expense as accounts payable, so you'll enter the expense using a General Journal Entry by crediting the liability account, Accrued Expense, and debiting the appropriate expense account.  When the vendor invoice if finally received, you will enter it as a Bill, and debit the Accrued Expense account and then pay it like any other Bill.

Expense Reports

Employees are required to submit expense reports to be reimbursed for out of pocket expenses, to claim the expenses incurred on company credit cards, and to account for the expenditure of travel advances.

The federal government maintains a complex set of travel regulations know as the Joint or Federal Travel Regulations.  While too complex to discuss here, you'll find valuable information about limitations on travel costs and what can be claimed at the GSA site at http://www.gsa.gov/portal/content/104877

Your expense report should be designed to capture travel expenses in a format that is compatible with the federal travel regulations.  You'll enter the expense into Quickbooks using a Bill.  I recommend that you enter a new expense report for each trip.  If you have non-travel expenses to claim, enter a separate expense report for these non-travel expenses at least monthly.

Here is a sample expense report in excel format available for download:

Download free excel expense report - click here.

Receipts

Receipts for expenses of $75 or more are required to be retained by DCAA for their audits.  Scanned copies are acceptable.

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