QuickBooks Online is one of the most used accounting software for small to medium-sized businesses. The same is true for small businesses in the government contracting sector. QuickBooks Online does not label itself as a DCAA-compliant software to the extent that other software does (Costpoint, Unanet, etc.). However, it is a DCAA-compliant software, and it has the reporting capabilities needed to be considered as such. Let’s look at three essential reports you need to use as a government contractor for QuickBooks Online. Now, I realize these reports are not exactly groundbreaking reports. However, some people fail to realize the importance of each report and do not really understand how to utilize them to their full potential.
Note: Other accounting software will have these same reports but will sometimes be referred to by a different name.
Profit and Loss (P&L)
You cannot discuss the topic of accounting for government contractors without bringing up the Profit & Loss report. After all, your income and costs are the main focus for DCAA when performing an audit. For example, a pre-award audit (SF1408) is solely focused on the adequacy of your accounting system and how well it can account for costs in accordance with their specified guidelines. The Profit & Loss report will give you the visibility that you need in order to see all of your income and costs. I love to use a P&L to review all sorts of trends like gross margin, revenue trends, trends in costs, and so much more. Trends can sometimes highlight areas where mistakes have taken place. For example, maybe your gross margin has been running 54% from January through March. Suddenly, it is running 14% in April, but nothing has changed in your business. This would indicate a potential error somewhere in revenue or direct costs. Aside from trends, I also love to use the P&L as it allows me to drill down into the accounts to ensure that prepaids, fixed assets, accruals, and unallowable costs were not missed. There are several other ways to use the P&L, but those are 2 of the important ways that I like to use it.
Profit & Loss by Customer
The P&L by Customer is just as important as the standard P&L. Think about the example above where we discussed the 54% gross margin. What if $50k in direct labor was coded to the wrong job? Well, it would appear to be fine on the standard P&L. Only the P&L by Customer would reveal this mistake. The P&L by Customer must be analyzed to ensure all costs are coded to the appropriate job. This also includes making sure that all direct costs are tagged to a job and that all indirect costs are not tagged to a job.
Balance Sheet
The balance sheet is one of the least exciting financial statements. Many owners and executives are not as interested in this report. However, it has great importance in your list of financials. How can the Profit & Loss reports be accurate if the Balance Sheet is not? For example, if prepaid expenses, accrued expenses, and accrued wages are not correct on the Balance Sheet, then it would be impossible for the Profit & Loss Reports to be accurate. This is why every account on the Balance Sheet must be reconciled on a recurring basis.
I have barely scratched the service by discussing the three reports mentioned above and have only covered a fraction of all the different ways they can be utilized. There are also many other reports that government contractors can benefit from in QuickBooks Online. Do you have questions about reporting in QuickBooks Online? Our team at Redstone GCI 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.