10 Reasons Why Job Cost Accounting is Important for Engineering  

10 Reasons Why Job Cost Accounting is Important for Engineering  


10 Reasons Why Job Cost Accounting is Important for Engineering 

Many professional service industries work on a contract or project basis. Knowing how much each client or project brings to the equity of the firm is paramount.  Basic accounting will not provide the level of insight that you desire into the company’s financial health and profitability of the projects that you take on.  Engineering is one such industry where managing the profitability of your projects is key.  This makes job cost accounting crucial for engineering projects for several reasons: 

  1. Budget Management: Accurate job cost tracking helps in managing project budgets effectively. By monitoring costs in real-time, engineers and project managers can identify potential cost overruns early and take corrective actions to keep the project on budget.
  2. Resource Allocation: Knowing the specific costs associated with different tasks, materials, and labor allows for efficient allocation of resources. Engineers can make informed decisions about where to allocate resources to ensure tasks are completed within budget and on schedule.  Staffing shortages will create backlogs on projects, reducing the revenue you can actually bill for.
  3. Cost Control: Detailed job cost data allows for better cost control throughout the project’s lifecycle. If certain tasks or phases of the project are costing more than anticipated, adjustments can be made to mitigate these overages and bring the project back in line with the budget.  This is especially important for fixed price projects.
  4. Performance Evaluation: Job cost analysis provides insights into the performance of various aspects of the project. It allows engineers and project managers to compare actual costs against the estimated costs and assess whether the project is progressing as planned.
  5. Profitability Analysis: For engineering firms, understanding job costs is essential for evaluating project profitability. Accurate cost tracking enables firms to calculate their profit margins accurately, helping them make informed decisions about future project bids and resource allocations.  Historical profitability analysis provides insight into the clients you want to accept in the future.
  6. Decision Making: Detailed job cost data aids in making informed decisions throughout the project’s lifecycle. Engineers can identify areas where cost-saving measures can be applied without compromising the project’s quality or schedule.
  7. Risk Management: Job cost tracking helps identify potential cost-related risks early on. By recognizing cost trends that deviate from the plan, engineers can take proactive measures to mitigate risks and avoid larger problems down the line.
  8. Client Communication: Transparent and accurate job cost reporting enhances communication with clients. It allows clients to understand how their money is being used and provides reassurance that the project is being managed effectively.
  9. Benchmarking and Lessons Learned: By analyzing historical job cost data, engineering firms can identify patterns and trends that contribute to successful projects. This information can be used to refine future cost estimates, project planning, and resource allocation.
  10. Legal and Regulatory Compliance: Some engineering projects may have legal and regulatory requirements related to cost reporting and tracking. Proper job cost documentation ensures compliance with these requirements.  Compliance with Federal Acquisition Regulations or similar for federal or state government contracts requires strict compliance.  

In summary, job cost tracking is essential for managing budgets, allocating resources, controlling costs, evaluating performance, making informed decisions, assessing profitability, managing risks, communicating with stakeholders, and complying with legal and regulatory standards in engineering projects. It provides the data needed to ensure projects are completed successfully, on time, and within budget.  

Are you a Professional Services Firm? Outsourcing your accounting can provide real-time job cost data and free up time for you to make better use of the information.  Virtual CFO provides GovCon-centric strategic accounting for small businesses providing services in technology, architecture, engineering, aerospace, and project management industries whether you have government contracts or not.  

We know your pain points – let us help you relieve them – schedule a consult. 

Incurred Cost Submission Common Problems

Incurred Cost Submission Common Problems

Common Problems for the Incurred Cost Submission

The Federal Acquisition Regulations (FAR) requires government contractors with certain contracts to submit an incurred cost submission (ICS). FAR 52.216-7 requires contractors who have time and material (T&M) or cost-reimbursable contracts to submit an ICS. The ICS schedules reconcile a contractor’s billings with the government. It does this by calculating the final indirect cost rates contractors incur. Government contractors have six months to submit an ICS after their fiscal year is over.

An ICS can be an overwhelming task to complete. The ICS model includes several schedules. Each of these schedules takes time, and usually many documents to complete. With at least fifteen schedules to complete, common problems may happen.

Job Cost Errors

As a government contractor, it is important to classify costs correctly. Therefore, classifying costs as direct, fringe, overhead, general & administrative, and unallowable is necessary. The proper classification minimizes the reporting errors of costs on the ICS schedules.

Segregating costs, such as allowable and unallowable costs, also prevents government contractors from incurring any penalties. The FAR clause 52.242-3 describes how contractors may face penalties as a result of including unallowable costs in their indirect cost pools.

Similarly, the job cost ledger not reconciling with the general ledger is another common problem for the ICS. Examples of why the two ledgers do not reconcile are:

  • Not assigning direct costs to a job
  • Assigning direct costs to a customer, not to a specific job
  • Tagging indirect costs to a job

Invoice Errors

It is important to make sure invoicing for government contracts is done correctly. However, there are different requirements for each type of contract. Some contracts include restrictions or limits on the invoicing for certain costs. On the other hand, other contracts may require to invoice at negotiated rates. Common errors that occur during the invoicing process are:

  • T&M contracts are not billed at negotiated rates
  • T&M contracts are billed with labor rates and hours as lump sums
  • Cost reimbursable contracts are billed like a T&M project.

In addition, over or under billings may exist on Schedule I as a result of job costs or invoicing errors. Due to this, the government contractor may owe the government money, or vice versa.

In conclusion, completing an incurred cost submission is necessary if government contractors have cost reimbursable or T&M contracts. Your virtual CFO should be proactive during the year to help minimize errors when completing an ICS. Ultimately, working having a virtual CFO who specializes in government contracting is the best.


Originally written by Jamie M. Shryock, CPA 

Updated and additional content provided by Elizabeth Partlow


Indirect Costs: Overhead vs G&A

Indirect Costs: Overhead vs G&A

Indirect Costs: Overhead vs G&A

As a government contractor, have you ever sat there and thought to yourself, ‘Gee it would be so much easier not having to worry about the allocation of all my business’ costs?’ Surely, you are not the only one. Being compliant with FAR can be time consuming, but it is important. First, identify if a cost is direct or indirect. An important question to ask is: Is the cost specific to only one cost objective? Cost objectives can include a contract, a task, or a contract line item. Direct costs are costs that are specific to one cost objective. Examples of direct costs are direct labor and material. These items are exclusive to specific cost objectives.

Indirect costs are not specific to a cost objective. These costs typically are split into 3 categories: Fringe, Overhead, and General and Administrative (G&A) costs. Fringe costs usually are the easiest to identify. They relate to employee costs, such as payroll taxes and compensated absences (sick and vacation time). People struggle the most with identifying overhead and G&A costs because they have similarities. So, what exactly are overhead and G&A costs?

Overhead Costs

Overhead costs directly relate to contracts but are not specific to one contract. People often refer to these costs as contract support. If a government contractor does not have any contracts, then they will also not have any overhead costs. Examples of overhead costs include:

  • Travel costs
  • Recruiting expenses for direct employees
  • Training
  • Conference fees (specific to contract support)

Labor can also be an overhead cost. An example of overhead labor is a meeting with project managers that is not specific to one contract.

General and Administrative (G&A) Costs

 General and Administrative expenses are the indirect costs that a business incurs to run its daily operations. These costs are not identifiable to a project, contract, or a product. This means that they exist even if a government contractor has no contracts. Examples of G&A costs include:

  • Accounting services
  • Marketing
  • Office supplies
  • Bid and proposal (B&P)

In some instances, employee labor is a G&A cost for a business. For example, employees who only perform administrative functions record their labor as G&A.

Identifying and properly classifying indirect costs is important as a government contractor. At times this can be a tricky task, but it does not have to be. If this is a challenging area for you, Cheryl Jefferson & Associates would love to assist you.


Originally written by Elizabeth A. Wells

Updated and additional content provided by Elizabeth Partlow

Why Budgets are Important for Business

Why Budgets are Important for Business

Mention the word budget to most business owners, and instantly their hands become clammy. Budgets often get a bad rap because planning one can be a tedious task. However, the benefits of a budget, far out-weigh, the dread many associate with the word. A budget is an essential tool for every business: big and small. In simplistic terms, a budget is a projection of revenues and expenses in a future period. Budgets serve as a ‘blueprint’ and aid in the success and growth of a business.

Goal Setting

Goal setting assists in achieving success and growth for your business. It is important to have long and short-term goals. Creating a budget can help you reach the goals you envision for your business. Budgets can also help you focus on your business’ goals. It is common for business owners to get caught up in the daily grind, forgetting about the big picture. Often leading to inefficiencies in resource usage. Reviewing your budget regularly allows you to ensure your business is on track to meet its goals.

Measuring Performance

Budgets can measure the performance of a business. Comparing a current budget to previous data can be a great way to track your business’ performance. These comparisons tend to make trends more visible. Often indicating areas needing improvement. Identifying areas of improvement allows business owners to find and implement solutions. Ultimately, helping a business to optimize its efficiency.

Decision Making

The decisions you make daily as a business owner affect the success of your business. Having a budget in place helps prepare you to make important decisions. It provides you with knowledge of the ‘ins and outs’ of your business. For example, an employee wants to attend a conference to develop their skills. Having a budget in place allows you to readily know whether this request is feasible or not.

Budgets are a great tool for businesses to use. The thought of creating one may seem like a daunting task, but it does not have to be. Cheryl Jefferson & Associates is available to assist you with your budget needs.


Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow

Working Capital  

Working Capital  

Working capital is the difference between a company’s current assets and its current liabilities.  Current assets include cash, inventory, receivables, and other assets which are expected to be turned into cash within one (1) year. Current liabilities include accounts payable, loans of one year or less, and other liabilities which are expected to be paid off within one year. Working capital is important because it allows management to see if the business is remaining solvent in accordance with its day-to-day operations.

What does this mean to a business? 

Having working capital is crucial for a business because it impacts short-term operations and long-term goals. Working capital measures a company’s operational efficiency, and short-term financial health. If a company’s current assets do not exceed its current liabilities, it could go bankrupt. Positive Working capital indicates that a company can fund its current operations. On the other hand, high working capital is not always a good thing. It might indicate that the business has too much inventory or is not investing its excess cash. A business must be able to pay its vendors on time. If not, cash will need to be paid prior to cash being received. Also, if there is no adequate working capital, it can become difficult to receive loans from banks for expansion and growth. That is because the business would be considered a risky investment. 

What can a business do/plan to increase working capital?  

Some strategies a business can take to increase working capital are: 

  1. Not financing fixed assets with cash. An alternative is using long-term loans or leasing fixed assets. 
  2. Have a line of credit (LOC). Business owners will want to keep this to a minimum. It will only work for the very short-term and should not be the business’ main source of cash.
  3. Owners can loan personal money to the business. The related party loan will be recorded as a long-term liability.
  4. Replace short-term debt with long-term debt. This can help in the near term, but payments will still need to be made on the long-term debt. 
  5. Issue more equity. Increases cash on hand.


Working capital is an essential part of a business and it is very important to manage it well for its success. There is no single formula that works for every business because every business is unique and has different necessities.  If your business needs to maintain healthy working capital levels, we can help. 

Originally contributed by Jamie M. Shryock, CPA 

Updated and additional content provided by Takeshi Aida