QuickBooks Online and QuickBooks Desktop are great pieces of accounting software for small businesses. There is almost no accounting task that QuickBooks cannot handle, and the good news for those looking to calculate indirect rates is that it is considered a government-compliant accounting system when used correctly. This means you can use it to pass an SF1408 pre–award audit and can even use the system to handle your government contract accounting indefinitely.
But, how does QuickBooks handle the calculation of indirect rates, if at all? Here are some key things to consider when you get ready to start preparing your indirect rates using QuickBooks:
- Indirect Rate Structure
- Chart of Accounts Setup
- How QuickBooks Handles Indirect Rate Calculations
QuickBooks can definitely get the job done for many small government contractors. However, there are some things you need to know when it comes to calculating your indirect rates in QuickBooks.
Indirect Rate Structure & Chart of Accounts Setup
The first thing you need to consider is not exactly accounting system specific. However, it is still one of the most important components of your indirect rate calculation. Your indirect rate structure needs to be decided well before it is time to calculate your indirect rates, and more importantly, it needs to be implemented into QuickBooks appropriately. This means that your cost pools need to be reflected in your chart of accounts. So, maybe your business has decided that it will have a G&A pool, fringe pool, overhead pool, and a facilities pool. Then, you need to make sure that your chart of accounts has each of these cost pools set up correctly so that costs can be recorded accurately. Of course, you will still need to make sure you are segregating your direct costs and unallowable costs accurately since these are factored into the indirect rate calculations as well. The indirect rate structure and the chart of accounts setup is such a crucial part of calculating indirect rates. If you get this wrong from the beginning, it will make calculating your indirect rates a much more difficult task when it does finally come time.
How QuickBooks Handles Indirect Rate Calculations
QuickBooks, unfortunately, does not currently have a way to automatically calculate indirect rates within the system. This means that you will have to manually calculate indirect rates offline using some sort of template that you have customized to match your indirect rate structure. This may sound like a daunting task, but it is achievable and can be done in just a few short hours (depending on the complexity of your indirect rate structure). Here at Redstone GCI, we typically handle manual rate calculations using Excel. We have found that using Excel allows us the most flexibility when it comes to customizing the template to perfectly match the indirect rate structure at hand. Also, once the template has been customized to meet the needs of the indirect rate structure, it can usually be updated every month in less than 1 hour. Again, this often depends on the complexity of the indirect rate structure, but we find that most take somewhere around an hour to update.
Are you currently using QuickBooks and need to calculate indirect rates? Or maybe you haven’t even decided on an indirect rate structure and need some guidance from one of our seasoned consultants? Either way, our team can help.
Dylan McMurrey is a Senior Consultant within Redstone GCI’s Collaborative Accounting Solutions Group based in Huntsville, AL. Dylan has several years of progressive experience in the public accounting industry and his role includes providing accounting support to our government contracting clients, as well as supporting government contractor specific reporting. Dylan has a passion for accounting and enjoys helping clients achieve success in their business. Professional Experience Dylan’s career in accounting began in the banking industry where he supported the accounting department for a regional credit union. Building on the experience gained in the banking industry Dylan moved into public accounting where he played a variety of role supporting the day-to-day accounting for clients and traditional CPA functions in attestation and taxation. During his time in public accounting, Dylan has supported companies operating in a variety of industries including government contracting. His diverse understanding of accounting processes in banking, government contractors and traditional commercial companies brings an additional perspective to the Redstone GCI team. Dylan’s primary role at Redstone GCI will be within our collaborative accounting group, where Dylan will lead the support of Redstone GCI clients with their monthly accounting and reporting activities. Dylan has a passion for accounting software and has supported clients on a diverse range of commercial accounting software, as well as supporting clients on more traditional government contract accounting systems like Deltek and Unanet. Additionally, Dylan provides support to both our compliance and software implementation groups where he assists with developing financial models to support forward pricing and strategic indirect rate evaluations.