Tip # 4: Year End – Validate Revenue & Lease Entries

GovCon Wednesdays
Estimated Read Time: 5 minutes

Revenue recognition and lease accounting are two of the most complex and most audited areas for government contractors.

Getting these entries right ensures your financial statements comply with GAAP, meet DCAA standards, and present an accurate picture of your 2025 performance before year-end.

Why It Matters

When auditors or contracting officers review your financials, they look closely at how you recognize revenue and account for leases.

Revenue recorded too early, too late, or under the wrong performance obligation can distort your indirect rates and misstate your results. Similarly, missing lease liabilities or right-of-use assets can lead to incomplete balance sheets and compliance risks under ASC 842.

Validating both ensures your books are accurate, defensible, and ready for any review.

Step 1: Review Revenue Recognition (ASC 606)

The ASC 606 standard requires companies to recognize revenue based on when performance obligations are satisfied — not simply when invoices are issued.

Use the five-step ASC 606 model to confirm each contract’s revenue treatment:

1. Identify the contract with the customer.
2. Identify the distinct performance obligations.
3. Determine the transaction price.
4. Allocate the price to performance obligations.
5. Recognize revenue as obligations are satisfied.

For GovCons, this often means recognizing revenue over time based on project milestones, hours worked, or percentage of completion depending on contract type.

✅ Best practice: Maintain documentation showing how you determined each performance obligation and how revenue was recognized auditors will ask for it.

Step 2: Verify Lease Entries (ASC 842)

The ASC 842 lease accounting standard requires that both operating and finance leases appear on your balance sheet as:

• A right-of-use (ROU) asset, and
• A lease liability based on the present value of lease payments.

Review your active leases for offices, equipment, and vehicles to ensure they are recorded correctly.

Key actions:

• Confirm lease schedules match your general ledger.
• Update amortization schedules for 2025.
• Verify lease terms and discount rates are accurate.
• Reconcile lease payments to your accounts payable and ROU asset accounts.

✅ Tip: Even small equipment leases can trigger ASC 842 reporting ensure none were missed.

Step 3: Cross-Check for Consistency

After reviewing both revenue and lease entries, cross-check your results for consistency across your books:

• Revenue recognized should match unbilled receivables and project reports.
• Lease expense should align with your indirect cost pool assignments.
• Financial statement disclosures should reflect updated balances and assumptions.

A quick consistency check avoids mismatched schedules that can raise red flags during audit or financial review.

Accurate Reporting = Audit Confidence

Properly accounting for revenue and leases isn’t just about GAAP compliance it’s about transparency, accuracy, and building trust with auditors, contracting officers, and stakeholders.

VSINGH CPA helps GovCons apply ASC 606 and ASC 842 standards accurately ensuring your books remain compliant, audit-ready, and reflective of your true performance.

👉 Check out our YouTube Shorts for quick GovCon year-end tips: https://www.youtube.com/@vsinghcpallc

Coming Up in the GovCon Year-End Closing Series

• ✅Tip #1: Know Your Accounting System & Year-End Checklist
• ✅Tip #2: Communicate Early with Tax Professionals & Auditors
• ✅Tip #3: Reconcile and Analyze Accounts
• ✅Tip #4: Validate Revenue & Lease Entries (ASC 606 & ASC 842)
• 5️⃣Tip #5: Prepare 1099s & Charitable Contributions
• 6️⃣Tip #6: Review Contract Status Reports & Submit Data to Tax/Audit Teams
• 7️⃣Tip #7: Final Wrap-Up — Year-End Complete, What’s Next?