SBIR Accounting Myth #11: “I Can Depreciate Direct Equipment”

Nope! In most cases, if you were reimbursed by the U.S. Government for direct equipment, you don’t own the property. Therefore, you can’t depreciate what you don’t own. Also, if you’re reimbursed for the total cost of the equipment, you don’t have a cost basis to depreciate since your book value would be zero. The general rule is you depreciate equipment at the lower of its cost or fair market value (at the time placed in service), not higher. Therefore, there is nothing to depreciate. I have to admit, I’ve seen some awardees and accountant’s find creative ways of depreciating something that is not owned or has no book value.


 

This is myth #11 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

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SBIR Accounting Myth #10: “I Can Use My Tax Depreciation for My Indirect Rates”

Maybe. If you’re using tax depreciation based on generally accepted accounting principles (GAAP), then you’re okay. However, this is rare, so chances are you’re using the modified accelerated cost recovery system (MACRS) and/or expense election (IRC Section 179) depreciation that will result in an annual difference in your indirect rate calculations. This requires a book v. tax depreciation schedule to be maintained.


 

This is myth #10 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

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SBIR Accounting Myth #9: “If My Executive Compensation Exceeds the NIH Limit, I Can Record the Difference Under F & A”

No. The direct portion (hourly effective rate based on level of effort) of time can only be billed up to the NIH Executive Compensation Limit. The indirect portion may be up to the amount actually paid (again, level of effort) provided that the compensation is considered reasonable.


 

This is myth #9 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

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SBIR Accounting Myth #8: “When My Contract Expires, I Can Run My Excess Costs Through Indirect Rates”

This would be a major problem in your system, not to mention risk with the United States Government. Costs do not change their color because your period of performance ended. A direct cost is a direct cost regardless of the POP provided you are still working on the same project. If your company changes direction with a new or revised statement of work for an internal project, then the nature of the cost may change, so be careful.


 

This is myth #8 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

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SBIR Accounting Myth #7: “I Can Keep My Books on the Cash Basis”

No way! For government contractors, your books must be on the accrual basis. So if you don’t see accounts payable, accounts receivable, or accrued expenses (especially payroll and vacation), your costs are not accumulating in the right time period to compute your indirect rates, contract billings, and income taxes (unless you’re a cash basis taxpayer).


 

This is myth #7 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

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SBIR Accounting Myth #6: “I Can Do My Own Books”

Possibly. Just like I don’t drift into nanotechnology research, you shouldn’t underestimate the importance of accurate data. For example, inadequate timekeeping approvals, transactional coding, and poor accounting structure lead to major problems down the road. A streamlined accounting system will help you fully understand how your data flows leading to effective decision making and grant and indirect rate management. Maintaining inaccurate information just doesn’t make sense. However, rest assured, many startups and small businesses have very “interesting” data.


 

This is myth #6 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

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SBIR Accounting Myth #5: “Let’s Wait Until Phase II to Bring My System Up-to-Date”

Not a good idea. Showing the government a working system helps demonstrate compliance, as well as trains you and your staff the importance of properly coding transactions, recording time, and billing the government. In other words, this becomes part of your company’s culture. Waiting always costs you more money because there are transactions that need to be corrected, accounts that need to be restructured, and payroll and billings that need to be reconciled. Not to sound too much like a sales pitch, but you can pay less now and more later.


 

This is myth #5 of our SBIR Accounting Myths blog series. George Moker is a CPA and an entrepreneur who brings a real approach to managing the accounting needs of your firm. George created this series of blog posts to his more than 30 years of small business and startup experience in an attempt challenge the myths about an adequate accounting system and its importance within your organization.

For more information on how we can help with your SBIR accounting needs, please visit us at www.mokercpa.com

Posted in General Accounting, SBIR, Uncategorized | Tagged , | Leave a comment