How Alcohol Costs Are Treated
Under FAR 31.205-51, the treatment is direct: costs of alcoholic beverages are unallowable. Contractors should therefore identify these transactions when processing employee expenses, travel expenses, entertainment-related purchases, supplier invoices, and other business expenditures.
FAR 31.201-6 also requires expressly unallowable costs to be identified and excluded from Government-contract billings, claims, and proposals. Directly associated costs can also require separate treatment when they are generated solely because the unallowable cost was incurred.
- Identify: Determine whether the transaction contains a charge for an alcoholic beverage.
- Separate: Distinguish the alcoholic beverage amount from other items included on the same receipt when appropriate.
- Classify: Record the amount using the contractor's established unallowable-cost accounting treatment.
- Exclude: Prevent the unallowable amount from entering applicable Government-contract billing, claims, or proposals.
Alcohol Costs on Mixed Receipts
A single receipt may contain both allowable and unallowable items. For example, a business meal receipt could contain food, nonalcoholic beverages, and alcoholic beverages. The presence of an unallowable alcohol charge does not automatically mean every item on the receipt has the same accounting treatment.
Finance teams should review the applicable cost principles and contract requirements, identify the specific alcohol charge, and apply the appropriate treatment to each component. Maintaining itemized receipts makes this process more transparent and supports accurate allocation.
Consider a $180 restaurant receipt containing $140 of food and nonalcoholic beverages and $40 of alcoholic beverages. If the applicable rules otherwise permit the qualifying food expense, the $40 alcohol charge should be separately identified as unallowable rather than included in the allowable amount.
Accounting and Cost Classification
Contractors should establish accounting procedures that distinguish unallowable alcohol costs from allowable expenditures. This can involve dedicated general ledger accounts, cost categories, expense types, or other accounting dimensions that prevent the amount from being included inadvertently in Government-contract cost submissions.
The distinction is particularly important when employee expense reports combine business meals, travel, entertainment, and other expenses. A clear classification process allows finance teams to preserve the complete transaction in the accounting system while separately identifying the portion that cannot be charged as an allowable Government-contract cost.
Procurement controls can also support accurate classification. A purchase order establishes authorization and transaction details for procurement activity, but the resulting invoice or receipt still needs to be reviewed for specific unallowable cost items.
Related Procurement and ERP Controls
Alcohol unallowable costs can arise outside traditional employee expense reports, including supplier transactions and event-related purchases. Strong procurement controls help organizations establish approval requirements, maintain transaction visibility, and connect purchases with the appropriate accounting treatment.
Contractors can also review the Manual Purchase Order Process vs Automated: Cut 80% Costs discussion when considering how purchase-order workflows affect procurement approvals, documentation, and transaction processing. Regardless of the workflow used, the final accounting treatment must continue to distinguish costs that are not allowable under applicable contract rules.
When finance systems are being modernized, How Hyperbots Helped Avoid Millions in ERP Migration Costs provides context on ERP migration and extending finance workflows around an ERP. For government contractors, the accounting design should preserve the attributes needed to identify and exclude unallowable costs after transactions move between systems.
Distinguishing Alcohol Costs From Other Contract Costs
Not every specialized government-contract accounting term addresses the same type of cost. Amortization Of Contract Costs concerns the accounting treatment of certain contract-related costs over time, while alcohol costs are specifically addressed as an unallowable selected item under FAR 31.205-51.
Fair Value Less Costs To Sell is a separate financial measurement concept used in asset-related accounting and should not be confused with the allowability analysis applied to contractor expenses.
Likewise, Incremental Costs Of Obtaining A Contract concerns costs that arise from obtaining a contract and their applicable accounting treatment. Understanding these distinctions helps finance teams route transactions to the correct accounting and compliance workflow instead of applying one classification rule to every contract-related expense.
Best Practices for Alcohol Unallowable Costs
- Configure expense categories so alcoholic beverage charges can be identified separately.
- Require itemized receipts when a transaction contains both alcoholic and other business-related items.
- Review employee expense reports and supplier invoices for alcohol charges before contract billing.
- Maintain accounting records that clearly distinguish unallowable costs from allowable costs.
- Exclude identified alcohol costs from applicable Government-contract billings, claims, and proposals.
- Periodically review transaction samples to confirm that classification and exclusion procedures are applied consistently.
These practices support accurate contract accounting while allowing the underlying business transaction to remain properly represented in the company's financial records.
Summary
Alcohol Unallowable Costs are alcoholic beverage expenses that FAR 31.205-51 classifies as unallowable for U.S. Government-contract cost purposes. Contractors should identify these charges, separate them from other receipt items when necessary, classify them appropriately, and exclude them from applicable Government-contract billings, claims, and proposals.
Clear accounting classifications, itemized documentation, procurement controls, and consistent review procedures help contractors maintain accurate financial reporting while applying Government cost requirements correctly.