Incurred Costs and Their Relation to DCAA Timekeeping

Understanding the concept of incurred costs is vital for every business in the GovCon industry. Not only does it help in tracking your company’s expenses, but it also plays a significant role in maintaining compliance with the Defense Contract Audit Agency (DCAA) requirements.

What Are Incurred Costs?

Incurred costs are the expenses that a company has recognized and recorded, regardless of whether these costs have been paid or not. These can include salaries, benefits, materials, and other overhead costs.

  1. Direct Costs: These costs can be directly attributed to a specific project or job. They include expenses like wages for the employees working directly on the project, materials used specifically for the project, and any other costs directly linked to the work being done.
  2. Indirect Costs: These costs are not directly linked to a specific project but are necessary for the overall operations of the company. They may include rent, utilities, office supplies, and administrative salaries.
  3. Variable Costs: These costs change based on the volume of work being done. As the volume of work increases or decreases, so do these costs. Examples are raw materials or manufacturing supplies.
  4. Fixed Costs: These costs remain constant, regardless of the volume of work being done. They include expenses such as rent and salaries.

Understanding the breakdown of incurred costs is crucial for accurate accounting and for maintaining compliance with DCAA requirements.

Connection Between Incurred Costs and DCAA Timekeeping

The DCAA requires contractors to track all costs related to each contract accurately. This includes direct costs like labor and indirect costs such as overheads. The importance of accurate timekeeping in determining these incurred costs cannot be overstated.

Here’s why:

Accuracy: Precise timekeeping ensures that labor costs, a significant component of incurred costs, are accurately captured.

Compliance: Adherence to DCAA timekeeping rules is crucial to stay compliant and avoid penalties.

  • Timekeeping System: To ensure accurate recording of labor costs, every contractor must have a reliable timekeeping system. It should track all employees’ work hours, including those working on government contracts.
  • Separation of Costs: Contractors must segregate direct and indirect costs. This distinction ensures that the government is billed appropriately for contract-related work.
  • Consistent Cost Allocation: Once costs are separated into direct and indirect categories, they should be consistently applied to all contracts. This consistency prevents any one contract from bearing an unfair proportion of the costs.
  • Documentation and Audit Trails: Maintain thorough documentation of all incurred costs. This includes receipts, invoices, payroll records, and any other relevant financial documents. Be prepared for the DCAA auditors to review these records.
  • Incurred Cost Submission: Contractors are required to submit an Incurred Cost Proposal to the DCAA each year, summarizing all costs related to government contracts. The data must be accurate, timely, and compliant with the DCAA’s regulations.

The Role of Hour Timesheet in Tracking Incurred Costs

Hour Timesheet is an efficient tool that can help you track your incurred costs effectively. It allows you to:

  • Track Labor Costs: By accurately recording the hours worked on each contract, you can calculate your labor costs precisely.
  • Ensure Compliance: An Hour Timesheet designed with DCAA compliance in mind helps you meet all the necessary requirements.
  • Streamline Processes: With automated timesheets, you can reduce administrative burden and focus on your core business activities.


Understanding incurred costs and their relation to DCAA timekeeping and Hour Timesheet is crucial for every GovCon industry player. They play a pivotal role in ensuring accuracy, compliance, and efficiency in your operations.

Sign up now for a free trial of our DCAA-compliant Hour Timesheet. Let us help you manage your incurred costs effectively and efficiently.

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