Defense, Aerospace & Government Contracting Knowledge Center
Explore our verified library of Defense, Aerospace & Government Contracting transactions. Every entry is reviewed for IFRS compliance and real-world accuracy by our technical accounting team.
Cost-Plus-Fixed-Fee (CPFF) Contract — Revenue Recognition as Costs Are Incurred
Recording revenue on a CPFF government contract — where the contractor is reimbursed for all allowable costs plus a negotiated fixed fee, with revenue recognized using the cost-to-cost input method.
Firm Fixed-Price (FFP) Contract — Cost-to-Cost Percentage of Completion Revenue
Recording revenue on a firm fixed-price defense contract using the cost-to-cost percentage of completion method — bearing full cost risk while recognizing revenue as work progresses.
Time & Materials (T&M) Contract — Revenue at Contractual Labor Rates Plus Material Cost
Recognizing revenue on a T&M government contract — billing labor hours at pre-negotiated loaded rates (including profit) plus direct material cost at cost — using the right-to-invoice practical expedient.
IDIQ Contract — Revenue Recognition on Issued Task Orders (Not on Base Contract Award)
Recording revenue only when individual task orders are issued under an Indefinite Delivery / Indefinite Quantity (IDIQ) contract — the base contract award creates no revenue recognition obligation.
Contract Modification / Engineering Change Proposal (ECP) — Cumulative Catch-Up Adjustment
Recording the revenue impact of an approved contract modification that changes the contract price or scope — applying a cumulative catch-up adjustment to reflect the new performance obligation definition.
Loss Contract — Onerous Contract Recognition (Estimated Costs Exceed Contract Price)
Accruing an anticipated loss when the total estimated cost to complete a fixed-price defense contract exceeds the contract's total price — recognized immediately in the period the loss becomes apparent.
DoD Progress Payments — Government Pre-Financing of Work-in-Process (75% of Costs)
Recording progress payments received from the Department of Defense on large fixed-price contracts — presented as an offset to the contract asset (not as revenue or debt), with title to work-in-process vesting in the government.
Billings in Excess of Costs — Contract Liability When Government Billed Ahead of Performance
Recording the contract liability when a defense contractor has billed the government more than the revenue earned to date — representing the obligation to perform future contract work.
Undefinitized Contract Action (UCA) — Revenue Recognition Before Price Is Agreed
Recording revenue on work performed under a Letter Contract or Undefinitized Contract Action — where the contractor starts work before a final price is negotiated, requiring a conservative variable consideration approach.
Request for Equitable Adjustment (REA) and Contract Claim — Contingent Revenue
Accounting for a contractor's claim against the government for additional compensation — recognizing only the amount that is highly probable not to be significantly reversed, with the claim process taking years to resolve.
Indirect Cost Rate Computation — Fringe, Overhead, G&A, and Forward Pricing Rates
Computing and applying the indirect cost rates that flow all overhead, fringe benefits, and G&A costs onto government contracts — the foundational cost accounting structure for every defense contractor.
FAR Part 31 Unallowable Costs — Identification, Segregation, and Removal from Indirect Pools
Identifying and segregating costs that are expressly unallowable under FAR Part 31 — removing them from indirect cost pools before computing rates that are charged to government contracts.
Bid and Proposal (B&P) Costs — Period Expense Included in G&A Pool
Recording costs incurred to prepare proposals for government contracts — expensed as incurred (not capitalized) and included in the allowable G&A pool when within negotiated B&P limits.
Independent Research & Development (IR&D) — Allowable R&D in G&A Pool
Recording IR&D costs — a defense contractor's independently funded research program — as an allowable G&A pool expense within government-negotiated limits, representing pre-competitive technology investment.
Earned Value Management System (EVMS) — Cost Performance Reporting on Major Programs
Recording and reporting Earned Value performance metrics — Planned Value, Earned Value, and Actual Cost — on major defense programs requiring EVMS compliance under DFARS 252.234-7002.
CAS 412 Pension Cost — Reconciling GAAP Pension Expense to CAS Pension Cost
Computing the CAS 412 pension cost for government contract allocation — which differs significantly from GAAP ASC 715 pension expense, creating timing differences that affect contractor billing rates.
Termination for Convenience — Settlement Accounting When Government Cancels a Contract
Recording the accounting impact when the government terminates a contract for its convenience — settling for allowable costs incurred plus a reasonable settlement profit, with inventory and WIP returned to the contractor or disposed.
Government-Furnished Equipment / Property (GFE/GFP) — Off-Balance-Sheet Custodial Accounting
Recording the receipt and tracking of government-furnished property provided to the contractor for contract performance — classified as off-balance-sheet custodial property (not an asset of the contractor).
Long-Term Contract Work-in-Process — Defense Inventory Accounting Under ASC 340-40
Recording work-in-process inventory on long-term defense hardware production contracts — tracking materials, labor, and overhead absorbed into WIP as production progresses toward delivery.
Defense System Warranty — Accrual for Product Performance Warranties on Military Hardware
Accruing warranty costs on delivered defense systems — covering the cost of repairing or replacing defective military hardware within the warranty period specified in the contract.
ITAR / Export Control Compliance Costs — Period Expense for Regulatory Compliance
Recording the costs of complying with International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) — including licensing, legal fees, compliance personnel, and system costs.
Foreign Military Sales (FMS) — US Government as Intermediary, Revenue from DoD Letter of Offer
Recording revenue on Foreign Military Sales contracts — where the US government sells defense articles to foreign governments and the contractor delivers to DoD (not directly to the foreign customer).
Incurred Cost Submission (ICS) — Annual Filing Reconciling Actual to Provisional Rates
Filing the annual Incurred Cost Submission with DCAA — reconciling actual indirect rates computed after year-end to provisional rates applied during the year, settling over-billed or under-billed amounts.
Cost-Plus-Incentive-Fee (CPIF) Contract — Variable Fee Recognition Based on Cost Performance
Recognizing variable fee income on a CPIF contract where the contractor's fee increases when costs underrun the target and decreases when costs overrun — applying the variable consideration framework.
Defense Contractor Business Systems — Compliance Cost and Withheld Payment Risk
Recording the cost of maintaining DFARS-required business systems (accounting, estimating, purchasing, MMAS, EVMS, property) — with the financial impact of payment withholding for non-compliant systems.
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