Can I amortize the cost of performance bond insurance?
We need to purchase bond insurance for a project in July, but revenue from the project doesn't start until August and the project runs for seven months. The bond is for one year. Can I amortize the bond insurance expense over the time period defined by the project?
Normally the way we would handle insurance payments for longer then one month is that we would classify it as an asset of prepaid insurance. Then transfer it to insurance expense each month for the portion of the insurance that applies to that period of time.
For example, apply one-seventh of the cost to each month since that is the length of the project if the insurance relates only to that project. If it can be used for any project, then you could do one-twelfth of the cost if that is more applicable.
Pam Newman is a Certified Management Accountant, author and Certified QuickBooks ProAdvisor for Financial and Point-of-Sale software. She is also president of RPPC, Inc.
, which provides customized business development services.