Thursday, April 8, 2010


The Federal Acquisition Regulations (FAR) require that some receipts should be credited against those costs to which they relate instead of being recorded on the books as a revenue or as non-operating income. FAR 31.201-5 states that "the applicable portion of any income, rebate, allowance, or other credit relating to any allowable costs and received by or accruing to the contractor shall be credited to the Government either as a cost reductin or by cash refund."

Examples of such credits include
  • Prompt payment or trade discounts
  • Airline and other travel refunds/rebates
  • Dividends or rebates under insurance policies (e.g. workers compensation)
  • Sales of scrap
  • Refunds on materials returned to suppliers
  • Tax refunds (e.g. state income tax and state sales tax)
Sometimes, it is a challenge to find an equitable method of allocating those costs back to the Government. For example, if the credit relates to an indirect expense and the contract mix and/or Government participation changed from when the costs were initially recorded to the year that the credits were received, it would not necessarily be equitable to charge the credit to the indirect expense pool. There have been times when the easiest way to give the Government its share of credits is simply to write a check.

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