The Right Chart of Accounts for GovCon in QuickBooks Online

If you run a small Government Contractor on QuickBooks Online, your chart of accounts is probably wrong for DCAA purposes — not because you made a mistake, but because QBO's default structure was never designed for government contracts.

This guide walks you through the logic behind a DCAA-compliant chart of accounts, what the key account groups are, and how to implement them in QBO without starting over. At the bottom, you can download the exact template we use with our clients.

Why the Chart of Accounts Matters for DCAA

When a DCAA auditor reviews your accounting system, one of the first things they check is whether your books can segregate costs properly. Specifically, they want to see:

Direct costs separated from indirect costs
Indirect costs organized into distinct pools (Fringe, Overhead, G&A)
Unallowable costs clearly identified and excluded from billing

If your chart of accounts can't support that separation, you don't have an adequate accounting system under FAR 16.301-3 — regardless of how good your bookkeeping is.

The structure of your accounts is the foundation. Everything else — timesheets, labor distribution, indirect rate calculations — depends on it being right.

The Five Cost Pools Every GovCon Needs

A DCAA-compliant chart of accounts organizes costs into five distinct groups. Here's what each one means and why it matters.

1. Direct Costs (50xxx)

Direct costs are costs that can be specifically identified with a contract. Labor, subcontractors, materials, equipment, and travel that you can trace to a specific project all belong here.

Key accounts in this pool:

50100 Direct Labor — hours charged to a specific contract
50200 Direct Subcontractors — subcontractor costs billed to a contract
50300–50400 Direct Equipment and Materials
50500–50509 Direct Travel — lodging, airfare, per diem, mileage, meals, rental car, taxi, parking, and other, each as a separate account

The granularity in direct travel is intentional. Auditors want to see specific travel categories, not a single "travel" bucket. It also makes reconciliation against expense reports straightforward.

2. Fringe Benefits (60xxx)

Fringe costs are the employer-side costs of having employees: health insurance, dental, 401k, payroll taxes, PTO, and workers' compensation. These are indirect costs — they can't be traced to a single contract — but they need their own pool because they're calculated as a percentage of direct labor.

Key accounts:

60101–60102 Medical and Dental Insurance
60200 401k Contributions
60300 Workers' Compensation
60401–60404 Payroll Taxes — FUTA, SUI, Social Security, and Medicare, both employee and employer portions
60405–60406 PTO and Holiday Pay

Most small GovCons lump these into a generic "payroll expenses" account. That works for commercial accounting but makes it impossible to calculate a compliant Fringe Benefit Rate — which is the fringe pool total divided by direct labor.

3. Overhead (71xxx)

Overhead covers indirect costs that support your direct work but can't be identified with a specific contract. This typically includes indirect labor, overhead travel, recruiting, conferences, and consultants who work across programs.

Key accounts:

71100 Overhead Labor — the most important one; hours that support projects but aren't billable to a single contract
71201–71204 Indirect Compensation — bonus, retro pay, severance, overtime premiums
71300–71309 Overhead Travel — same subcategories as direct travel
71500 Recruiting Expense
71600 Consultants

The distinction between Overhead and G&A is one of the most common sources of confusion. The rule of thumb: if the cost supports your contracts (delivery), it's Overhead. If it supports running the business (administration), it's G&A.

4. G&A — General and Administrative (80xxx)

G&A covers the cost of managing and running the company as a whole. Finance, HR, legal, accounting, executive management, insurance, licenses — anything that supports the business rather than specific contracts.

Key accounts:

80100 G&A Labor — CEO, CFO, HR, accounting staff time
80400 Consulting Services and 80600 Legal & Professional Fees
80700 Business Insurance
80800 Bank Service Charges and 80850 Accounting Service Fees
80550 Dues and Subscriptions

A special sub-pool within G&A: 81000–81200 Bid & Proposal Costs. DCAA allows these costs but requires they be tracked separately. If you don't have a dedicated B&P pool, you're either burying those costs in G&A or losing visibility into what it actually costs you to win work. Both are avoidable.

5. Unallowable Costs (90xxx)

This is the pool that most GovCons miss entirely. Certain costs are explicitly unallowable under FAR Part 31 — meaning you cannot bill them to the government directly or indirectly. They include entertainment, alcohol, advertising, fines and penalties, certain legal fees, interest expense, and officer/owner insurance.

If you don't have a dedicated unallowable account group, you're at risk.

Here's why: unallowable costs that end up mixed into allowable pools inflate your indirect rates. If a DCAA auditor finds unallowable costs inside your Overhead or G&A pool, you can face disallowances, repayments, and penalties. Keeping them in a clearly labeled 90xxx group protects you.

Key accounts:

90003 Charitable Contributions
90004 Advertising and Promotions
90005 Fines and Penalties
90006 Interest Expense
90007 Unallowable Legal Fees
90008 Alcohol and 90009 Entertainment
90010 Officer and Owner Insurance
90011 Federal Corporate Taxes

How to Implement This in QuickBooks Online

QBO lets you create and customize your chart of accounts, but there are a few things to keep in mind when setting this up.

Use account numbers. QBO doesn't require them, but you should use them. The numbering convention (10xxx assets, 20xxx liabilities, 40xxx income, 50xxx direct costs, and so on) makes it immediately clear where each account belongs and makes your trial balance readable to auditors.

Map your expense accounts correctly. When creating accounts in QBO, you'll be asked to assign a Detail Type. Use the most specific type available — it matters for QBO's built-in reports and for any third-party tools that pull from your account structure.

Don't use sub-accounts for cost pool separation. A common mistake is to create a single "Indirect Costs" parent account and nest Fringe, Overhead, and G&A underneath it. This makes it hard to calculate indirect rates because you want each pool to roll up to a clean total independently.

Keep your direct travel categories granular. The 50500 travel group has nine sub-accounts. This level of detail is standard for government contracting and makes it easy to validate against federal travel regulations and reconcile against expense reports.

A Note on the Facilities Pool (70xxx)

Depending on your size and contract mix, you may also maintain a Facilities pool as a separate indirect cost pool, covering rent, utilities, network, and depreciation. Some contractors roll this into Overhead; others keep it separate to get a cleaner Overhead rate.

The template includes a 70xxx Facilities group. Whether you treat it as a standalone pool or as part of Overhead depends on your indirect rate structure — worth discussing with your CPA before you finalize your setup.

Download the Template

The chart of accounts described in this article is available as a free Excel file, ready to import into QuickBooks Online. It includes all 147 accounts across the five cost pools, with account numbers, Detail Types, and QBO account types pre-filled.

You'll receive the file by email. No spam, unsubscribe anytime.

What Comes Next

A correct chart of accounts is the foundation. But it doesn't enforce itself. You still need timekeeping that assigns employee hours to specific contracts and indirect pools, labor distribution that translates those hours into journal entries against the right expense accounts, and an audit trail that documents who charged what and when.

That's what WiseCost does — it layers DCAA-compliant timekeeping and labor distribution on top of your existing QBO setup, without requiring you to migrate to a new accounting system.

If you're working through this for the first time, the DCAA Ready webinar series covers the full setup process with a live walkthrough of chart of accounts configuration led by a CPA.

Chart of accounts reviewed by Wendroff & Associates CPA, specialists in DCAA compliance and GovCon accounting.