Guide · QuickBooks
Is QuickBooks DCAA Compliant? How to Set It Up for Government Contracts
Short answer: no software is DCAA compliant on its own, QuickBooks included. DCAA looks at your accounting system, which it describes as methods, procedures and controls. QuickBooks can support an adequate system for many small contractors when it’s set up with contracts as projects, a direct and indirect cost split, separate unallowable accounts and project-level timekeeping, and then run that way every month.
- 12 years inside DCAA
- 100+ DoD contractors audited
- CPA led
- QuickBooks, Costpoint, SAP & NetSuite
- Remote, nationwide
By Alexander Mungov, CPA, former DCAA Supervisory Auditor
Last updated: September 13, 2026
Is QuickBooks DCAA compliant?
No, and neither is any other product. DCAA doesn’t approve or certify accounting software. Its own small business training on accounting system requirements says an accounting system is more than a software package: it’s your accounting methods, procedures and controls. The same training says many software packages can be part of an acceptable system, or be set up in a way that fails.
The regulation says the same thing. DFARS 252.242-7006 defines the accounting system as the contractor’s “accounting methods, procedures, and controls” and lists 18 criteria. None of them names a product.
So the honest answer has two halves. QuickBooks can support an adequate system for many contractors with 3 to 50 employees, including companies on their first cost-type contract or SBIR Phase II. It’s also true that QuickBooks out of the box is not adequate. A default file has no project structure for costs, one payroll expense account, no unallowable accounts, no labor distribution and no way to compute an indirect rate. When people say “QuickBooks isn’t DCAA compliant”, they’re usually describing that default file, and on that point they’re right.
One more thing that clears up confusion: DCAA reviews a system only when a government official asks, usually the contracting officer or DCMA. You can’t get QuickBooks “certified” ahead of time, and the expensive system your competitor bought carries no approval either. Our pre-award audit checklist covers how that review works.
The criteria
What DCAA checks, mapped to QuickBooks
The criteria come from Section II of the SF 1408 and the 18 criteria in DFARS 252.242-7006 (renumbered 252.242-7999 under DoD Class Deviation 2026-O0050). Here’s where each one lives in a QuickBooks file.
Direct costs separated from indirect costs
Separate account ranges for direct labor, direct materials, subcontracts and other direct costs, apart from the fringe, overhead and G&A pool accounts. Classes can add a second layer, but the split has to exist in the chart of accounts.
Direct costs accumulated by contract
Each contract is a project under its customer. Every direct cost line carries the project: bills, expenses, card charges, payroll and journal entries. A project that only appears on invoices is not job costing.
Line item or task detail, if the contract requires it
A sub-customer or separate project for each CLIN or task that’s funded or reported separately, named the way the contract names it.
Logical, consistent indirect allocation
Fringe, overhead and G&A pools as account ranges, with a written base for each. The rate math happens outside QuickBooks (more below), from numbers that tie to the trial balance.
General ledger control and reconciliation
The job cost report comes from the same ledger as the financial statements. Each month, total direct cost on the project reports should equal the balances in the direct cost accounts.
Approved, documented adjusting entries
Journal entries with a memo, attached support and a reviewer. QuickBooks Online’s audit log records who changed what; Intuit says it can’t be turned off and keeps events for two years.
Timekeeping and labor distribution
Hours captured daily by project and indirect code, then payroll posted to direct and indirect labor accounts by project. Hours on timesheets tie to hours paid.
Costs determined at least monthly
A monthly close, then a locked period using QuickBooks’ close the books setting with a password.
Unallowable costs excluded
Separate unallowable accounts. FAR 31.201-6 requires expressly unallowable costs to be identified and excluded from any billing, claim or proposal.
Billings that reconcile to the books
Invoices built from the job cost report, with cumulative billed versus incurred tracked for each contract.
GAAP accounting
Accrual basis, with month-end accruals. Cash-basis tax books don’t meet this.
Setup
How to make QuickBooks DCAA compliant, step by step
Do these in order. Each one depends on the one before it.
Switch to accrual reporting and set your fiscal year
Rates and incurred cost submissions run on your fiscal year, so pick it deliberately.
Rebuild the chart of accounts
Direct cost ranges, one range per indirect pool, and an unallowable range. The sample below shows the shape.
Set up customers and projects
One project per contract, with sub-levels for CLINs or tasks where the contract needs them. Keep indirect charge codes (overhead work, administration, proposals, paid leave) in the timekeeping tool so every hour has a home.
Map products and services to accounts
Each item points to one account, so choosing “Subcontract labor” on a bill posts to the subcontract account and not to a general expense account.
Turn on classes and use one scheme
Pick a single purpose, such as pool (direct, fringe, overhead, G&A) or on-site versus off-site, and apply it to every transaction.
Distribute payroll by project
Wages post from approved timesheets to direct or indirect labor by project. Employer taxes and benefits go to the fringe pool.
Close every month
Reconcile accounts, book accruals, tie job cost to the general ledger, update the rate workbook, then lock the period.
Write it down
Short procedures that describe what you actually do. The auditor reads them and then watches you work.
Chart of accounts
A sample QuickBooks DCAA compliant chart of accounts
Account numbers are illustrative. What matters is that each range maps to one element of cost, and that nothing lands in a catch-all account.
| Range | Group | What goes here | Notes |
|---|---|---|---|
| 5000s | Direct labor | Wages for hours charged to contracts | Posted by project from timesheets, never as one lump payroll entry |
| 5100s | Direct materials | Materials bought for a specific contract | Tagged to the project on the bill |
| 5200s | Subcontracts | Subcontractors and consultants working on a contract | Kept apart from materials; many G&A and fee questions turn on it |
| 5300s | Other direct costs | Contract travel and other costs the contract lets you charge direct | Tagged to the project |
| 6000s | Fringe pool | Payroll taxes, health and retirement benefits, paid leave, workers’ comp | Base is usually total labor dollars |
| 7000s | Overhead pool | Indirect labor and costs that support the people doing contract work | Base is usually direct labor dollars |
| 8000s | G&A pool | Executive and administrative labor, accounting, legal, insurance, business development, proposals | Base is often total cost input |
| 9000s | Unallowable | Entertainment, alcohol, lobbying, fines and penalties, donations and similar costs | Sub-accounts by pool show what was excluded from each rate |
Indirect labor gets its own accounts inside each pool, separate from the benefits and other costs in that pool. That one split makes the fringe base and the labor distribution far easier to prove.
Timekeeping
DCAA timekeeping in a QuickBooks setup
Timekeeping is where most small contractors fail, and setting up the accounting side of QuickBooks doesn’t fix it. DCAA’s Information for Contractors (DCAAM 7641.90) sets out the expectations: a system that identifies labor by cost objective, employees recording their own time, supervisor approval, and a written policy. DCAA also runs unannounced labor floor checks.
- Daily entry by project. Every employee records time each day against a contract or an indirect code.
- Total time. All hours worked, including uncompensated overtime, for salaried and hourly staff alike. A salaried employee who always shows exactly 40 hours is a flag.
- Owners too. If the owner works on the contract, those hours are direct labor. If not, they’re indirect. The auditor needs to see which.
- Employee certification and supervisor approval. The employee signs off at the end of the period, and a supervisor approves.
- Corrections with a reason. Changes made or agreed to by the employee, with a stated reason, and the original entry still visible in the history.
Where the time lives is up to you. Some contractors use QuickBooks Time, Intuit’s time tracking product; others use a separate timekeeping tool that exports to payroll. We don’t sell or endorse one. Test the tool against your policy: daily reminders, project codes synced from QuickBooks, electronic sign-off and approval, a change history with reasons, and locking after approval. Our DCAA timekeeping policy guide has a sample policy and floor check questions.
Indirect rates
Indirect rates: the part QuickBooks doesn’t do
QuickBooks doesn’t calculate multi-tier indirect rates natively. It reports totals by account and class, which gives you the pools. It doesn’t compute fringe, then overhead, then G&A in sequence, apply those rates to each project, or compare actual rates with your billing rates. Most small contractors calculate rates in a workbook tied to the general ledger each month, or use an add-on built for QuickBooks. Either works if the numbers reconcile to the trial balance.
- Fringe. Pool: payroll taxes, benefits, paid leave. Base: usually total labor dollars, direct and indirect.
- Overhead. Pool: indirect labor and costs that support contract work. Base: usually direct labor dollars.
- G&A. Pool: running the company as a whole. Base: often total cost input, meaning all costs except G&A itself.
“Multi-tier” means the rates stack. Fringe burdens labor, overhead burdens burdened direct labor, and G&A burdens everything below it. Three pools is common for a small contractor, but your contract mix decides. See our indirect cost rate page for pool and base design.
Billing
Billing cost-type contracts out of QuickBooks
On a cost-reimbursement contract with FAR 52.216-7, you bill interim public vouchers as work progresses. Large businesses can bill no more often than every two weeks; small businesses can bill more often.
A voucher claims direct costs from the job cost report, indirect costs at your provisional billing rates, and fee as the contract allows. Under FAR 42.704, the contracting officer or auditor responsible for final rates sets billing rates, and they can be revised by agreement. Unpaid vendor costs are billable only if you’ll pay them on terms and ordinarily within 30 days of your payment request. On DoD contracts, DFARS 252.232-7003 requires payment requests through Wide Area WorkFlow (WAWF).
QuickBooks can produce the invoice, but the amounts should come from the job cost report and rate workbook, with a cumulative billed-versus-incurred reconciliation per contract. After year end, the same clause requires a final indirect cost rate proposal within six months. Our incurred cost submission guide covers it.
Findings
Common QuickBooks mistakes an auditor finds
None of these is a software limitation. Each one is a setup or process choice that can be fixed.
Cash-basis books
No accruals, so monthly contract cost is wrong and the books don’t follow GAAP.
One payroll account
All wages in “Salaries”, with no split between direct and indirect labor and no distribution to projects.
Projects on invoices only
Revenue is tagged to the contract but costs aren’t, so there’s no job cost ledger.
Unallowables buried
Alcohol and entertainment in “Meals”, donations in “Marketing”. They flow straight into the rates.
Owners without timesheets
Owner and salaried hours assumed rather than recorded, so labor can’t be traced to cost objectives.
Weekly time from memory
Timesheets filled in on Friday, or by an office manager, with edits and no reasons.
Periods never closed
No lock date, so last quarter’s numbers keep changing after they were billed.
A rate nobody can rebuild
One blended overhead percentage in a spreadsheet that doesn’t tie to the ledger.
Outgrowing it
When you actually outgrow QuickBooks
Most contractors with 3 to 50 employees don’t need to leave QuickBooks. These are the real triggers:
- CAS coverage. Once you have CAS-covered contracts, you need disclosed, consistent practices and more cost detail. Under the FY2026 NDAA, the CAS thresholds rise to $35 million, and $100 million for full coverage, effective October 1, 2026. Our threshold guide has the details.
- Many cost-type contracts with a complex pool structure. Several overhead pools, business segments, or on-site and off-site rates applied across dozens of projects every month.
- More than one company. Intercompany allocations and a home office expense pool are hard to keep clean across separate files.
- Enforced workflow and audit trail at scale. Approval routing, role-based restrictions and purchasing controls across many users. Intuit’s plan page lists 5 users on Plus and 25 on Advanced.
If two or more of those apply, read our guide to Costpoint and Unanet alternatives before you buy anything.
Online vs Desktop
QuickBooks Online vs Desktop for government contractors
Both can be set up this way, and DCAA doesn’t prefer either. The practical difference now is availability. Intuit says it stopped selling new subscriptions to QuickBooks Desktop Pro Plus, Premier Plus, Mac Plus and Enhanced Payroll for new US subscribers after September 30, 2024. Existing subscribers can keep renewing, and Desktop Enterprise is still sold. A new US company starting today is realistically choosing QuickBooks Online or Desktop Enterprise.
Within QuickBooks Online, the plan matters. Intuit’s plan page lists class and location tracking and project profitability on Plus and Advanced, not on Simple Start or Essentials. For contract job costing, Plus is usually the starting point.
How we help
You keep your QuickBooks. We set it up and run it.
We set QuickBooks up with jobs, the direct and indirect split, unallowable accounts and project timekeeping, then run the monthly accounting: bookkeeping, job cost by contract, timesheet review against payroll, the month-end close and the rate workbook. We do the bookkeeping. You are not getting a memo. A CPA reviews every month-end close.
GovCon monthly accounting starts with Core from $800/month (up to about 7 employees, one or two contracts). Cost-Type from $1,500/month adds cost-type or T&M work, monthly indirect rates and provisional billing rate tracking. Controller from $2,500/month covers up to 50 employees and several cost-type contracts. One-time work: an indirect rate structure build from $3,000, a timekeeping policy plus staff training from $1,200, and an SF 1408 pre-award readiness review from $2,500. Prices assume clean books; cleanup is billed hourly at $160/hour or quoted. Details are on our pricing page, and the full system build is on our DCAA-compliant accounting system page.
On cost: accounting and bookkeeping are ordinary indirect costs, usually G&A, and generally allowable if reasonable and allocable. On cost-type work you recover them through your indirect rates. On firm-fixed-price work they’re part of the price you bid.
Questions
Frequently asked
Is QuickBooks DCAA compliant?
Not by itself, and no software is. DCAA describes an accounting system as methods, procedures and controls. QuickBooks can support an adequate system when contracts are projects, direct and indirect costs are split, unallowables have their own accounts, and time is recorded daily by project.
Is QuickBooks a government approved accounting system?
No. The government doesn’t approve accounting software. A contracting officer decides whether your system is acceptable, usually after a DCAA review of how you have set it up and how you run it.
Is QuickBooks Online DCAA compliant?
The same answer applies to Online and Desktop. Either can be set up correctly. For job costing, Intuit lists class tracking and project profitability on the Plus and Advanced plans, not on Simple Start or Essentials.
What does a DCAA compliant chart of accounts look like in QuickBooks?
Separate ranges for direct labor, direct materials, subcontracts and other direct costs; one range each for the fringe, overhead and G&A pools; and a separate range for unallowable costs. Indirect labor gets its own accounts inside each pool.
Is QuickBooks Time DCAA compliant?
No timekeeping product is compliant on its own. What matters is daily entry by project, all hours recorded, employee sign-off, supervisor approval, and corrections with a reason and a visible history. Test any tool against that policy.
Can QuickBooks calculate indirect rates?
Not natively for multi-tier rates. QuickBooks gives you the pool and base totals. Most small contractors calculate fringe, overhead and G&A in a workbook tied to the general ledger each month, or use an add-on built for QuickBooks.
How do I set up job costing for a government contract in QuickBooks?
Make each contract a project, with sub-levels for CLINs or tasks if the contract requires them. Tag every direct cost and every labor hour to the project, and reconcile the project reports to the direct cost accounts every month.
Do I need Costpoint to win a cost-type contract?
No. A cost-type award needs an accounting system that can segregate, accumulate and allocate costs, not a particular product. Bigger systems start to make sense with CAS coverage, complex pool structures, several companies or many users.
More
Related services and guides
DCAA-compliant accounting systems
We build the system in the QuickBooks you already have, then run it monthly.
Indirect cost rate structures
Pools, bases, provisional billing rates and the monthly rate workbook.
DCAA timekeeping policy
Daily timekeeping rules, a sample policy and floor check questions.
Costpoint and Unanet alternatives
When a bigger system is worth it, and when it isn’t.
Want to keep QuickBooks and pass the review?
Tell us how many employees and contracts you have and how you track time today. We reply within one business day and send a written proposal within two business days after the intro call.