Quickbooks is an incredibly popular accounting tool for small-business owners. It’s affordable, user friendly, easy to learn, and provides all of the functionalities that most businesses would need. But government contractors have much more specialized accounting needs than most businesses, due to the accounting compliance standards established by the DCAA. Is it even possible to use Quickbooks as a government contractor and still remain DCAA compliant? Or is this accounting software just too simplified to meet your needs? Keep reading to learn more.

The Short Answer

The shower answer to this questions is yes, you can make Quickbooks DCAA compliant. However, the software is not automatically set up to meet DCAA standards. You’ll need to configure Quickbooks in a few different ways in order to bring it up to snuff and ensure you pass your DCAA audit. Configuring Quickbooks takes some knowhow, so if you need help with this process, feel free to reach out to us. We’ve provided a basic look at the items that will need to be configured below.

Chart of Accounts

The first step to making this software DCAA compliant is to configure your chart of accounts to meet their standards. In its standard format, the Quickbooks chart of accounts is simply a listing of your general ledger accounts, where all of your transactions are posted in the accounting system. To be DCAA compliant, however, your chart of accounts must meet the following requirements:

  • Proper separation of direct and indirect costs
  • Accumulation of costs under general ledger control
  • Exclusion of costs not allowable, accounting to FAR 31
  • Accounting system in accordance with GAAP

Your chart of accounts provides the foundation for building your DCAA-compliant accounting system, so it’s vital that you start with this aspect of your accounting and ensure that it’s unquestionably aligned with the DCAA standards.

Contract Data

Quickbooks makes it easy to capture your billing and cost information on the customer level. However, DCAA requires that this information be segregated by contract, and not just by customer. You’ll need to configure your Quickbooks to segregate your contracts if you hope to pass your DCAA audit.


This is one area where you may find Quickbooks lacking. All employees who touch a government contract, whether it’s directly or indirectly, need to keep a timesheet that records all of their working hours every day, including details of what work was performed on the contract. There are very few timesheet systems out there that are completely DCAA compliant, so you may have to supplement your Quickbooks with your own timekeeping system to pass an audit.

Payroll Items

Many government contractors use a third-party payroll service, and if this is the case for you, you’ll need to develop a new payroll journal entry in Quickbooks to interface correctly with the labor distribution process and generate the labor distribution report. This is an essential report for your DCAA audit, and payroll items will need to be set up properly in Quickbooks if you hope to pass that audit.

Understanding the DCAA Compliance Checklist

There are many other aspects of Quickbooks that need to be configured, in addition to specific processes you must follow in your processes in order to remain DCAA compliant. It’s incredibly important that you become familiar with the audit list (SF 1408) so you can properly evaluate your system. If you read over the checklist and don’t understand the items on it, this is a good sign that you won’t pass that audit.

While, as we mentioned, it is possible to get Quickbooks up to DCAA compliance standards, the level of work it requires and the margin for error are quite significant. We strongly recommend that you work with a professional accountant to make sure there are no issues with your DCAA audit, and that your accounting practices and reports are always above board.

If you’re concerned about getting your accounting system up to DCAA standards, contact Peter Witts CPA today. We specialize in providing accounting to government contractors like you, and provide a higher level of service than you could ever receive from a piece of accounting software alone. We’ll guide you through your DCAA audit to ensure you pass with flying colors and are prepared to start receiving government contracts. Give us a call today to schedule a consultation with our government contractor accounting experts.