Prepared by VSINGH CPA LLC
As we close out the year, now is the perfect time to make sure your accounting method is giving you the clarity, accuracy, and compliance support your GovCon business needs. The method you use—Cash Basis or Accrual—directly affects your indirect rates, invoicing, forecasting, and audit readiness.
This guide breaks down the differences in a simple, GovCon-specific way so you can enter 2026 with confidence.
Accrual Accounting
The Method Built for Growing Government Contractors
Accrual accounting recognizes revenue when the work is performed, and expenses when they are incurred, even if the cash hasn’t moved yet.
This approach aligns with federal requirements and gives you a true picture of how your business is performing.
- Required for cost-type contracts under FAR 52.216-7
- Required for accounting system approval under SF 1408
- Follows the matching principle, aligning revenue and expenses in the correct period
- Produces clean indirect rates and contract margins
- Scales naturally with T&M, IDIQ, and multi-year contracts
Example:
If you complete work in December and get paid in February, accrual accounting recognizes the revenue in December, alongside the labor and indirect costs used to deliver that work.
Cash Accounting
Simple to maintain, but limited for federal contracting
Cash basis records income and expenses only when cash is received or paid. It’s straightforward, which is why many small contractors begin here—but it has limitations once your business expands.
It can be useful for early-stage firms or those working mainly on commercial or fixed-price projects. But it does not meet the compliance structure required for cost-type work, SF 1408, or accurate indirect rate modeling.
Example:
If you finish work in December but get paid in February, cash basis will show the revenue in February, causing December to look artificially low and February artificially high—making forecasting and rate calculations inconsistent.
Cash vs. Accrual at a Glance
|
Category
|
Accrual Basis
|
Cash Basis
|
|---|---|---|
|
Revenue
|
When earned
|
When cash received
|
|
Expenses
|
When incurred
|
When paid
|
|
FAR 52.216-7
|
✔ Required
|
✘ Not compatible
|
|
SF 1408
|
✔ Required
|
✘ Not acceptable
|
|
Matching Principle
|
✔ Yes
|
✘ No
|
|
Best For
|
GovCons with growth, cost-type, T&M
|
Early-stage or commercial work
|
Thinking About Moving From Cash to Accrual?
Shifting to accrual can strengthen your entire financial foundation. It improves rate modeling, budgeting, ICS submissions, and overall visibility into contract performance.
A proper conversion ensures:
- Revenue appears in the period work is performed
- Expenses align to the correct periods
- Accruals, AP, AR, and unbilled receivables are accurately recorded
- Contract revenue aligns with ASC 606 performance obligations
Let’s Finish the Year Strong — Together
Whether you stay on your current method or transition to accrual, we’re here to help you choose the approach that strengthens your GovCon’s compliance, profitability, and reporting.
If you’d like VSINGH CPA to review your accounting method or support your year-end close:
We’re ready to help you cross the finish line.
VSINGH CPA LLC
GovCon Accounting • DCAA Compliance • Unanet • QuickBooks • Advisory
www.vsinghcpa.com