How to Record Severance Above FAR Limits
Segregates the portion of employee severance pay that exceeds the limits defined in FAR 31.205-6(g) to ensure it is not billed to the government.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Severance Expense (Allowable) | Debit | 25,000.00 | - |
| Unallowable Compensation Expense | Debit | 15,000.00 | - |
| Accrued Severance Liability | Credit | - | 40,000.00 |
💡 Accountant's Note
FAR 31.205-6(g) limits allowable severance to the amount required by law, employer-employee agreement, or established policy; excess payments are unallowable.
Practitioner & Systems Framework
💻 ERP Architecture
Map the unallowable portion to a 9XXX series account for exclusion from the indirect rate calculation.
⚠️ Audit Flags
Executive golden parachutes or severance payments exceeding standard company policy.
📄 Required Documentation
Employee handbook, severance agreement, and comparison to FAR ceiling limits.
Automate this entry with the JEH Accounting Suite
Stop doing manual entry. Our VBA-powered ERP automatically generates your ledgers, Trial Balance, and Financial Statements.
No Subscriptions. Own your data.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
Related Journal Entries
Defense, Aerospace & Government Contracting
Cost-Plus-Fixed-Fee (CPFF) Contract — Revenue Recognition as Costs Are Incurred
Defense, Aerospace & Government Contracting
Firm Fixed-Price (FFP) Contract — Cost-to-Cost Percentage of Completion Revenue
Defense, Aerospace & Government Contracting
Time & Materials (T&M) Contract — Revenue at Contractual Labor Rates Plus Material Cost
Discussion & Community Questions
Loading comments...