QuickBooks Year-End Checklist for Government Contractors

Closing out the year is an important step in your accounting cycle, and it should involve more than just “closing the books.” For government contractors, year-end is about ensuring your financials are accurate, compliant, and audit-ready, not just for tax purposes, but to support ongoing contract and regulatory requirements.

This checklist applies to cost-type, time-and-materials, and hybrid government contractors, as well as any contractor using QuickBooks to track job costs and indirect expenses. QuickBooks can support government contractor compliance, but only when it is properly configured, consistently maintained, and routinely reviewed. Even if you are not currently under audit, these year-end steps help ensure your records are prepared for future reviews, incurred cost submissions, and other compliance inquiries.

The year-end process is the perfect time to clean up your QuickBooks file, tie out your accounts, and confirm that your accounting practices align with government contractor requirements. In this article, we discuss some of the most important year-end considerations.

Reconcile All Balance Sheet Accounts

Before anything else, make sure your balance sheet accounts are fully reconciled. This includes bank accounts, credit cards, loans, payroll liabilities, accounts receivable, accounts payable, and any other asset, liability, or equity accounts. While this should be done monthly, year-end is a critical checkpoint to confirm that all year-end activity has been properly recorded.

As part of this review, confirm that:

• Bank and credit card accounts are fully reconciled
• Uncollectible accounts receivable have been written off
• Year-end bonuses have been properly accrued
• Accrued vacation and leave balances have been calculated and recorded
• Payroll liabilities and related accruals are accurate

Addressing these items at year-end helps prevent errors from carrying forward into the new year and provides a clean starting point for ongoing reporting.

For government contractors, unreconciled or unsupported balance sheet accounts can create significant downstream issues. These balances directly impact indirect rate calculations, the accuracy of incurred cost submissions, and overall audit credibility. Discrepancies identified during an audit or proposal review are far more difficult to resolve after the fact, making year-end reconciliation an essential step in maintaining compliance and audit readiness.

Reconcile Profit & Loss by Job to the Standard Profit & Loss

This reconciliation is vital for government contractors because job cost reporting drives both financial visibility and compliance reporting. Your Profit & Loss by Job report must align with your overall financial statements to ensure costs are consistently classified and accurately reflected across your accounting records.

As part of this review:

• Ensure gross profit ties between the Profit & Loss by Job report and the Standard Profit & Loss
• Verify nothing is coded to “unspecified customer” on the Profit & Loss by Job report
• Confirm costs aren’t coded both to a job and to an indirect expense account, and vice versa. Indirect costs should not be coded to a job, and direct costs must be tagged to a job.

This reconciliation helps identify miscoded transactions that can lead to incorrect billing, distorted job margin analysis, and complications during DCAA reviews. Inconsistent job cost data undermines the reliability of both management reporting and compliance reporting, making this step a critical part of the year-end close for government contractors.

Review Your Timekeeping System

Accurate timekeeping is a cornerstone of government contracting compliance and one of the most heavily scrutinized areas during audits. Year-end is a critical time to review your timekeeping system configuration and processes to confirm that labor is being captured, reviewed, and approved in accordance with policy.

Review your QuickBooks Time setup, or other timekeeping system, to make sure:

• Employees are entering time daily and in the correct accounting period
• Supervisors are reviewing and approving time entries in a timely manner
• All employees are assigned to the correct supervisor
• Employees only have access to the charge lines (customers or projects) and service items, including labor categories, that they are authorized to work on
• Inactive employees are correctly marked as inactive. If you are using QuickBooks Time, this update is managed in QuickBooks Online and then synced to QuickBooks Time

Incomplete, late, or improperly approved time entries can undermine labor cost accuracy, complicate labor distribution, and raise compliance concerns during a DCAA review. Performing a thorough year-end review helps ensure clean audit trails and reliable labor data to support both financial reporting and compliance requirements.

Clear Out Inactive Customers and Accounts

Over the course of a year, QuickBooks files naturally accumulate customers, vendors, and chart of accounts entries that are no longer in use. Cleaning these up at year-end improves reporting clarity, reduces confusion, and makes your QuickBooks file easier to navigate and maintain.

As part of this review:

• Mark customers and vendors that are no longer active as inactive
• Inactivate chart of accounts entries that have not been used in the past 12 to 24 months and are not expected to be used going forward
• Review job and customer lists to confirm they accurately reflect current and active contracts

Inactivating unused items does not delete historical data and can be reversed at any time if needed. This cleanup supports clearer job cost reporting, more reliable indirect cost analysis, and fewer errors caused by outdated or unused accounts. It also helps ensure you are not unnecessarily consuming your QuickBooks Online account limit, which is capped at 300 accounts for QuickBooks Online Plus.

For government contractors, maintaining a clean, well-organized chart of accounts and customer list supports consistent reporting. It also reduces the risk of miscoding costs, particularly during audits or compliance reviews.

Segregate Unallowable Costs per FAR 31.205

FAR 31.205 identifies specific costs that are unallowable for reimbursement under government contracts, including entertainment, alcohol, lobbying, and certain advertising expenses. These costs must be properly segregated in your accounting system and excluded from billings and allowable cost pools.

As part of your year-end review, confirm that:

• Unallowable costs are classified into clearly defined, segregated accounts
• Unallowable expenses are not charged directly to contracts
• Unallowable costs are excluded from indirect cost pools and related calculations
• Costs subject to partial allowability are reviewed and treated appropriately

While segregation of unallowable costs should be part of your regular monthly process, year-end is an important opportunity to look back and identify items that may have been miscoded throughout the year. Failure to properly segregate unallowable costs can result in incorrect billings, questioned costs, audit findings, and increased scrutiny during incurred cost proposal reviews.

Taking the time to address these items now helps reduce compliance risk and supports cleaner, more defensible reporting going forward.

Preparing Your Accounting Records for the Year Ahead

Year-end is an opportunity to do more than finalize your books. It is a chance to confirm that your QuickBooks file is organized, your costs are properly classified, and your accounting practices align with government contractor requirements. Taking the time now to reconcile accounts, validate job cost data, review timekeeping controls, and confirm proper treatment of unallowable costs helps establish a solid foundation for the year ahead.

A well-prepared year-end close supports smoother tax preparation, more reliable financial reporting, and fewer disruptions during audits or compliance reviews. By addressing potential issues early and maintaining disciplined accounting processes, government contractors can move into the new year with confidence that their records are accurate, their costs are properly classified, and their financial data can support audits and compliance reviews.

Redstone GCI’s team of experts works with government contractors to support year-end readiness through QuickBooks cleanup, job cost and indirect rate reviews, timekeeping compliance assessments, and audit and incurred cost preparation support. Whether you need help validating your accounting setup or addressing specific compliance concerns, having experienced guidance can help ensure your records are organized, defensible, and aligned with government requirements as you move into the new year.