What is Deferred Acquisition Costs ?

1656 reads · Last updated: December 5, 2024

Deferred Acquisition Costs (DAC) refer to the direct costs incurred by a company when acquiring new customers or signing new contracts, which are not immediately expensed but deferred and amortized over future periods. Typical deferred acquisition costs include sales commissions, advertising expenses, underwriting fees, and other directly related expenditures. Accounting for DAC allows for a more accurate reflection of a company's financial condition and operational performance, especially in insurance companies and financial institutions where this method is widely used. By deferring and gradually amortizing these costs, a company can better match its revenues and expenses over multiple accounting periods, leading to more balanced and accurate financial reporting.

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