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NPR 9060.1B
Effective Date: April 24, 2023
Expiration Date: April 24, 2028
Printable Format (PDF)

Subject: Accrual Accounting - Revenues, Expenses, and Program Costs

Responsible Office: Office of the Chief Financial Officer

| TOC | Preface | Chapter1 | Chapter2 | Chapter3 | AppendixA | AppendixB | AppendixC | AppendixD | ALL |

Chapter 2. Accrued Expenses and Program Costs

2.1 Overview

2.1.1 This chapter provides requirements for recording accrued costs, also known as expenses. Resources consumed, whether paid or unpaid, comprise NASA's cost of doing business. Cost is the monetary value of resources used or liabilities incurred to achieve an objective, such as to acquire or produce a good, perform an activity, or acquire a service. Depending on the nature of the transaction, cost may be charged to operations immediately (i.e., recognized as an expense of the period) or to an asset account for recognition as an expense over time in subsequent periods. The period's expenses may be classified further into other categories, such as operating expense and program cost. Classification into categories supports the analysis of the efficiency and effectiveness of NASA's business. The operating expenses include the general administrative costs of the Agency while program costs include cost that can be tracked to individual programs.

2.2 General Requirements

2.2.1 NASA personnel will record costs within, or as close as possible to, the period in which they are incurred. For costs incurred in the current period for which the actual value is unknown, estimated amounts should be recorded.

2.2.2 The estimated cost amount recorded may be adjusted when the actual value of work performed is determined by confirmation of the amount of resources used by technical personnel (e.g., CO's Representatives, Resource Analysts, Cost Analysts, Accountants, and Project Managers), actual cost reported by contractors, performance of contract audit, determination of contract administration services costs, or approval of amounts presented on invoices for payment. NASA personnel will record contractor costs based on the constructive receipt of work performed to NASA contract specifications. Although formal acceptance of goods or services supports cost entries, it is not the determining factor for accounting recognition when cost is incurred on products that are not commercial items suitable for sale to the public. Estimated cost representing the constructive receipt of this type of work, in process or performed, may be recorded as of the end of the accounting period as accounts payable. Technical personnel will review, and where needed, develop cost amounts to be recognized in the core financial accounting system. Technical review of cost is an internal control that ensures accruals are reasonable and appropriately cover expenses incurred through the period. NASA personnel will measure and report the full cost of its outputs and outcomes in the general-purpose financial reports. Full cost includes resources consumed by each segment for the direct or indirect contribution to outputs and identified costs of supporting services provided by other reporting entities. This includes the recognition of inter-entity (imputed) costs when appropriate. Full cost is measured to determine the total operational costs and total unit cost of outputs. Inter-entity costs involve activities or costs between two or more agencies, departments, or bureaus.

a. Costs Incurred by Other Entities for NASA. In order to comply with the requirement for full- cost reporting, NASA, as the receiving entity, will recognize the full cost of goods or services received from other entities whether or not payment is provided in exchange, in accordance with SFFAS 4 and 55. The performing entity provides NASA with information on the full cost of its services through bills or other documentation. Recognition of inter-entity costs that are not fully reimbursed (non-reimbursed or under-reimbursed) is limited to material items that are significant and able to be directly identified to NASA. The recognition of non-reimbursed or under- reimbursed cost incurred by others is offset by the recognition of a financing source.

b. Costs incurred by NASA for Other Entities. When applicable, NASA personnel will provide customer agencies with the full cost of NASA services whether or not the costs are to be reimbursed. When applicable, non-reimbursed or under-reimbursed cost incurred by NASA are financed by NASA's direct appropriations. Costs should be recorded using funding obligated to purchase the specific goods provided or services performed within the documented period of performance. Costs related to Prompt Payment Act interest will be recorded using available funds appropriated to the program that incurred the penalty.

a. The incurrence of cost of an appropriately obligated acquisition may take place during the unexpired and expired phases of the contract's funding within the period of performance documented in the contract. Estimated cost amounts initially recorded when goods or services are received may be adjusted during the five years of the fund's expired phase. An adjustment of estimated cost values will not be recorded against funds in the canceled phase unless it meets the definition of a prior period adjustment recorded due to correction of an error or a change in accounting principle.

b. In a canceled fund, NASA personnel will recognize the cost amount in the future funded expense account. Upon receipt of an applicable invoice, the account is reduced by the amount of the invoice or to zero if the invoice is marked final. Disbursements are not permitted using canceled funds; therefore, the invoiced cost will be recorded in an unexpired fund with the same purpose as the originally canceled fund to reflect the actual value of cost incurred. Refer to NPR 9470.1, Budget Execution, for additional information on phases of fund availability. NASA personnel should monitor estimated cost accruals for accuracy, whether provided by the contractor or NASA's technical personnel. If analysis indicates the estimates are consistently or significantly inaccurate, OCFO personnel will promptly take appropriate corrective actions to ensure future estimates are reasonably accurate. NASA personnel should also monitor indirect cost estimates using provisional billing rates and actual indirect cost reported by contractors. Action should be taken to prevent the recognition of indirect cost billed and recorded substantially higher than the actual cost reported. Contract provisional billing rates provide a method for interim reimbursement of indirect costs at estimated rates subject to adjustment during contract performance and at the time the final indirect cost rates are established. Billing rates and final indirect cost rates are used to reimburse indirect costs on cost-reimbursement contracts and in determining progress payments on fixed-price contracts. Contractors are required to provide indirect cost amounts based on both actual and provisional billing rates per NPR 9501.2, NASA Contractor Financial Management Reporting; however, only the contractor's actual indirect cost rates are recorded in the core financial accounting system. An exception to this occurs when provisional billing rates are required in order to process interim or progress payments. This may occur when costs are recorded using actual rates that are below the provisional rates included on invoices. The Cost Analyst and/or Resource Analyst should notify the CO when provisional billing rates are consistently or significantly different from actual billing rates, so that provisional billing rates may be adjusted to prevent substantial overpayment or underpayment of actual cost incurred. The Center OCFO will recognize properly incurred cost regardless of whether the cost exceeds available funding. Unfunded liabilities should be recorded in accounts provided for that purpose, and current liabilities not covered by budgetary resources should be disclosed. This requirement applies to all types of obligations for goods or services. NASA personnel are responsible for managing cost, including contract cost. Approval will not be given for contractor performance or the receipt of goods that exceed the cumulative amount obligated in the contract to guard against a potential Antideficiency Act violation. Refer to NPD 9050.3, Administrative Control of Appropriations and Funds, and NPR 9050.3, The Antideficiency Act, for more guidance. Cost incurred by the contractor that is not allowed, not approved, or above documented ceilings is not proper, and the Center OCFO will not record such cost, even in the situation where the original obligation is within funding limits. Cost entries are allowed for upward adjustments that increase obligations in a properly chargeable account where obligations were previously unrecorded or under recorded. This may occur when, in a subsequent year, the price of goods or services increases and NASA is liable for the increase under a provision in, or within the scope of, the original contract. Upward adjustments of original contract funding are not permitted beyond funding ceilings in cost-reimbursement contracts for discretionary cost increases.2 Further, upward adjustments that increase obligations to an amount that exceeds available appropriated funds, may result in a violation of the Antideficiency Act (See also NPR 9050.3).

2 Government Accountability Office (GAO), Principles of Federal Appropriations Law (Red Book), 3rd ed., Vol. I, Ch. 5, ยงยง 5-36, (GAO-04-261SP). In cases where incurrence of cost exceeds the cumulative obligations on a contract, Center OCFO personnel will immediately:

a. Determine the nature of the disparity between the contract award and performance amounts.

b. Contact the CO to determine what actions are needed to address the condition. The actions are dependent on contract requirements, contract type, or if the contractor has overrun the contract.

c. Take corrective action to remedy the situation and address the root cause. The Center OCFO will record cost using the funding codes and symbols assigned by Treasury, the Office of Management and Budget (OMB), and NASA, as required.

2.2.3 Cost Reports. The Analysis of Accrued Cost section of the cost reporting system's Timeliness, Analysis of Accrued Cost, and Adjustment Explanation Reports do not allow for the input of explanations of variances. Therefore, NASA personnel should document and manually track the explanations of variances. Information on cost reporting is also contained in the CMP Monthly Exception Report.

2.3 Cost Recognition

2.3.1 The Center OCFO will make every practicable effort to ensure cost accruals are as accurate as possible. Sections 2.3.2 through 2.3.9 provide additional information on cost accruals based upon the type of activity.

2.3.2 Personnel Compensation, Personnel Benefits, and Related Payments.

a. Gross Compensation. Gross compensation, including overtime, should be accrued, through the end of each month. NASA personnel should use the labor distribution system to distribute actual charges to cost accounts and to credit-accrued funded payroll and leave. If practicable, NASA personnel should implement a month-end record cutoff, such as where daily time records are kept, and the only additional effort required is an interim cutoff and report. If a record cutoff is not feasible, cost should be accrued through the end of the month using the most reliable estimating techniques available. Labor cost accruals should be distributed to the appropriate benefiting project(s) and functions. Merit bonuses and awards should be accrued in the month in which the Center OCFO is notified of the liability for payment. The cost of unused annual leave, compensatory time, and credit hours earned monthly, will also be accrued.

b. Benefits. The cost of benefits, including NASA contributions to Social Security, retirement funds, the Thrift Savings Plan, and group health and life insurance programs should be accrued in the same manner as gross compensation. Other benefits should also be accrued, such as relocation-related real estate costs and personnel allowances, in the month in which notification of liability for payment is received.

c. Reemployed Annuitants and Severance Pay. The cost of payments to the Office of Personnel Management for reemployed annuitants and severance pay for former employees should be accrued in the same manner as gross compensation.

d. Recruitment and relocation bonuses and retention allowances. Recruitment and relocation bonuses and retention allowances should be accrued in the month in which the Center OCFO is notified of the requirement for payment.

2.3.3 Travel and Transportation of Persons.

a. The accrual for transportation, per diem, and miscellaneous costs should be estimated for the month travel commences based upon the travel days that fall prior to the close of the month. Actual cost is recorded when invoices and travel vouchers are approved.

b. Travel costs not documented by travel orders, such as contracts for the rental of passenger- carrying vehicles not associated with Temporary Duty Travel (TDY), should be based upon contractor billings or estimates.

c. Permanent change of station travel and transportation costs should be accrued when incurred.

d. Transportation of Things. Costs that are evidenced by copies of Government Bills of Lading (GBL) issued to carriers should be accrued when the certified invoice is received, concurrent with the obligation. At the end of the fiscal year, costs not yet documented by a GBL should be accrued based upon billings received or other reliable notices that transportation has been accomplished.

2.3.4 Rents, Communications, and Utilities.

a. Leases and Rents. NASA personnel will accrue for leases and rents based upon lease or rental agreements. In the absence of language to the contrary, 1/12 of the total annual rent each month will be accrued.

b. Communications and Utility Services. Costs for communications and utility services will be accrued based upon billings received. If billings are not available or usage fluctuates significantly, NASA personnel will obtain meter readings or estimates of usage and price according to the appropriate schedule of charges.

2.3.5 Other Contractual Services. Costs of contracted services as of the end of the month during which the services are performed will be accrued. If invoices covering the services have not been received or approved, NASA personnel will estimate the accrual based upon the known level of activity, previous billings, or information provided by cognizant NASA personnel.

2.3.6 Supplies and Materials.

a. Accruals should be based upon invoice prices, when available, or receiving reports using purchase order prices.

b. Direct project or program support purchases for which the end-use classification is predetermined to the appropriate end-use classifications should be accrued in the month the items are received.

c. Stores and standby stock initially should be accrued against the applicable inventory cost object.

d. All receiving reports should be accrued for whether or not the invoice has been received.

2.3.7 Grants and Cooperative Agreements. The Grants and Cooperative Agreements should be accrued as determined by the Center using methods suggested in FASAB Federal Financial Accounting and Auditing Technical Release (Technical Release) 12: Accrual Estimates for Grant Programs.

2.3.8 Contracts and Purchase Orders.

Accruals for Cost-Type Contracts. Under cost-type contracts, the contractor performs in accordance with instructions and specifications prior to delivery and Government acceptance of the product. In such cases, the accrual will be recorded as the work is performed, since constructive acceptance of the end product occurs during each accounting period as the contractor earns a portion of the contract price. The same concept applies to prime contractor accruals of subcontractor costs.

2.3.9 Contracts with NASA Contractor Cost Reporting.

a. When submittal is contractually required, contractor cost reports (usually NASA Form (NF) 533M, Monthly Contractor Financial Management Report, and NF 533Q, Quarterly Contractor Financial Management Report), will be the basis for the cost accrual. (See the current versions of NPD 9501.1, NASA Contractor Financial Management Reporting System, and NPR 9501.2, NASA Contractor Financial Management Reporting, for detailed information on NF 533M and 533Q reporting.)

b. When NF 533 reports are not received in time to permit recording of the contractor's actual costs, the cost accrual will be based on the contractor's estimate for the current month. Refer to section 2.3.9.d if there is a concern about the accuracy of the contractor's estimate.

c. Contractors' accounting periods commonly differ from the calendar month basis used for NASA accounting. Monthly cost accruals, however, need not include an estimate for the cost to be incurred during the period from the end of the contractor's accounting period to the end of the month. This estimate should be performed quarterly.

d. If monthly analysis of the accuracy of a contractor's estimates indicate they are usually significantly inaccurate, the appropriate corrective actions should be promptly taken to ensure future estimates are reasonably accurate. (If for a given month there is reason to believe the contractor's estimate will be significantly inaccurate, the estimate should be increased or decreased, as necessary, to improve the accuracy of the accrual for the month. Any such exception adjustments should include an explanation, whether for an individual month or a period of months, to the Center DCFO(F)'s satisfaction and documentation of the adjustments in the cost reporting system. If the explanation cannot be fully recorded on the Cost Entry Sheet line, the Center OCFO maintains documentation of the complete explanation. The explanation will be reviewed prior to acceptance of the accrual.) If it is necessary to adjust a contractor's estimates for a number of months while corrective actions are implemented to improve the accuracy of the estimates, the effect of such adjustments should be analyzed each month to ensure they are resulting in more accurate accruals. Contractors' actual costs shown on NF 533 reports are not adjusted.

2.3.10 Monitoring NF 533 Timeliness, Contractor Estimates, and Cost Reporting System Accruals.

a. The timeliness of receipt of the NF 533 reports and the accuracy of accruals each month should be monitored. The cost reporting system provides Analysis of Accrued Cost, Timeliness, and Adjustment Explanation Reports to assess the timeliness and accuracy of Center accruals and contractor estimates. Cost reporting system analysts will review the Analysis of Accrued Cost Reports each month to assess the accuracy of the accruals and document explanations for consistently excessive variances. Variances shown in the report measure accuracy of the contractor estimates and the effect of any Contractor Cost Reporting Analyst adjustments to those estimates. A monthly review should be performed of the Analysis of Accrued Cost Reports for those contracts which account for the majority (at least 85 percent) of the Center's total monthly cost accrued on contracts with contractor cost reports to support the management of the contract. Where consistently excessive variances of +/- 10 percent occur, cost reporting system administrators request and review explanations of causes and corrective actions taken to improve the accuracy of contractors' accruals. The variances measure the accuracy of contractor estimates and the effect of any cost reporting system analyst adjustments to those estimates. Performance is tracked against established goals and as required in Chapter 6 of the Continuous Monitoring Program (CMP). The Center DCFO(F) will regularly review these metrics, along with data assessing timeliness of NF 533 report submission, with Center CFOs. It is suggested that analysis is shared with the CO and Technical Personnel (CO's Representatives, Resource Analysts, Cost Analysts and Accountants, and Project Managers).

b. The Center DCFO(F) will notify the CO when contractors' NF 533 reports are frequently late, not received, or the estimates reported show consistent, significant variances to subsequently reported actuals. Upon notification, the CO may pursue corrective action.

c. NF 533 reports should be structured to facilitate accrual accounting in accordance with NASA's prescribed coding structure in categories that directly relate to the proper funding appropriations. Reporting structures should also be designed to provide cost data in the program/functional management classifications by which NASA managers relate in-house activity. The current versions of NPD 9501.1 and NPR 9501.2 provide requirements and guidance regarding development of NF 533 reporting structures. Where a direct correlation between reporting categories and the prescribed coding structure is not feasible, the cost reporting system provides cost allocation methods for the distribution of cost within reporting categories. The distribution methodology should reflect work being performed by the contractor and ensure matching of costs to the proper funding appropriation. The Center DCFO(F) will periodically review allocations made to ensure conformance with Agency costing policy and the approved contract methodology.

(1) Center OCFO is required to use the cost reporting system to generate entries related to NF 533 contracts within the core financial accounting system for processing NF 533 contracts. The cost reporting system will serve as the basis of record for the accrual of contractor costs to include transactions related to the following:

(a) Termination liability. When reported by a contractor, termination liability represents the contractor's estimate of costs incident to stopping work on the contract in the event of termination. This cost should not be accrued unless it is probable that it will occur within the current reporting period, reasonably estimable, and material; in accordance with NPR 9260.1, Liabilities. Such instances are extremely uncommon.

(b) Discounts. The final contract cost will be reduced by the amount of discounts taken for prompt payment. Discounts taken on contractor invoices are recognized in the accounting system using Standard General Ledger accounts.

(c) Award and Incentive Fees. Fees should be accrued as earned and reported on NF 533 reports or billed by contractors. For award fees, only the base fee should be accrued as earned each month, and if historical evidence or contract provisions exist to support accrual of an estimated portion of the award fee, that portion will also be accrued. Incentive fees should be accrued when earned in accordance with the incentive fee provisions in the contract. Any accrual adjustments should be explained to provide an audit trail from the NF 533 report to the amount accrued in the accounting system.

2.3.11 Contracts without NASA Contractor Cost Reporting. NASA personnel should recognize cost using a straight-line calculation, or other cost recognition methods, for contracts without NF 533 contractor cost reporting. Cost accruals are based upon the most appropriate, reliable data available, such as recent statements of costs, contractor billings, or other reasonable projections.

a. When cost is incurred at a steady rate without large fluctuations, the straight-line calculation should be used. Center OCFO will review the accrued cost recorded using the straight-line calculation prior to year-end closing to confirm that the period of performance has not been revised and to ensure adequate costs have been recorded.

b. When actual cost incurred is volatile and differs significantly from the amount of cost recognized, the cost methodology should be analyzed and revised as needed.

2.3.12 Accruals for Fixed-Price Contracts and Purchase Orders.

a. Contracts and Purchase Orders Requiring Specific Performance. Accruals for fixed-price contracts and purchase orders requiring performance should be based in accordance with specific contractual instructions or specifications, as opposed to goods available "off-the-shelf," upon the constructive receipts concept. Technical personnel may provide the percentage of known work completed or the number of work products provided.

b. Contracts and Purchase Orders for "Off-the-Shelf" Items. Accruals for fixed-price orders for goods which the contractor has available for sale to others will be made when the Federal agency receives and takes title to the goods, including instances where the contractor delivers the goods to a carrier acting on the Federal agency's behalf. These accruals should be based on receiving reports, invoices, or similar documents. A percentage of the total contract value may be used for partial deliveries if documentation is not available.

c. Purchase Orders with Other Government Agencies. Cost accruals for purchase orders with other Government agencies should be calculated using the most accurate method considering the type of order.

(1) When appropriate, a straight-line calculation should be used for orders when the delivery of services will occur at a steady rate over a specific period of performance.

(2) The accrual should be recorded using other cost estimating techniques when none of the preceding methods is appropriate. Cognizant NASA personnel should record and confirm accruals each month. Examples of data sources include:

(a) Standard Interagency Agreements and Orders (7600A and 7600B), receiving reports, and cost estimates obtained from the Government agency involved.

(b) Estimates of construction work in place obtained from the Department of the Army Corps of Engineers or other Government agency. Cost curves may be used to evaluate estimates.

(c) Purchase order terms and prior billings when incurred cost estimates cannot be obtained from the performing Government agency.

2.3.13 Procurement Purchase Cards. Cost is recorded at the time the bankcard statement is reconciled and posted for disbursement. An accrual will be recorded monthly. The accrual is reversed in the subsequent month (accounting period) after the completion of the reporting cycle.

2.3.14 Procurement Instruments and Accrual Recognition Summary Table. See Procurement Instruments and Accrual Recognition Summary Table in Appendix C for a summary of procurement instruments, frequency of accrual, and basis of recognition for each procurement instrument.

| TOC | Preface | Chapter1 | Chapter2 | Chapter3 | AppendixA | AppendixB | AppendixC | AppendixD | ALL |
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