How to Record Liquidated Damages on Contracts
Recording an accrual for liquidated damages (LDs) assessed by the government for failure to meet contract delivery schedules.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Unallowable Expense - Liquidated Damages | Debit | 50,000.00 | - |
| Accrued Liabilities - Contract Penalties | Credit | - | 50,000.00 |
💡 Accountant's Note
Liquidated damages are treated as unallowable penalties under FAR 31.205-15 and must be recorded in an unallowable account to prevent them from being charged to the government through indirect rates.
Practitioner & Systems Framework
💻 ERP Architecture
Set up an alert in the project module when delivery dates pass without a DD250 to trigger LD assessment.
⚠️ Audit Flags
Recording LDs as a reduction in revenue rather than a segregated unallowable expense (though both affect the bottom line, segregation is required for CAS compliance).
📄 Required Documentation
Contract clause FAR 52.211-11, cure notice, or contracting officer's formal assessment letter.
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Discussion & Community Questions
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