What is the meaning of deferred acquisition costs

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What Are Deferred Acquisition Costs?

Deferred acquisition costs (DAC) are expenses that a company incurs in the process of acquiring a new customer or client. These costs are not immediately recognized as an expense, but are rather recorded as an asset on the company’s balance sheet and amortized over the life of the customer or client relationship.

Examples of Deferred Acquisition Costs

Examples of DACs include advertising and marketing costs, sales commissions, and other costs associated with acquiring a new customer. These costs are typically expensed over the life of the customer or client relationship, as the customer or client continues to purchase products or services from the company.

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Why Are Deferred Acquisition Costs Important?

DACs are important because they help companies accurately report the true cost of acquiring new customers or clients. By amortizing these costs over the life of the customer or client relationship, companies can more accurately report the true cost of acquiring a new customer or client. This helps companies better understand the true cost of doing business and make more informed decisions about their marketing and sales strategies.

Conclusion

Deferred acquisition costs are important for companies to accurately report the true cost of acquiring a new customer or client. By amortizing these costs over the life of the customer or client relationship, companies can more accurately report the true cost of acquiring a new customer or client and make more informed decisions about their marketing and sales strategies.

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