How to Record Contract Performance Bonds
Accounting for the cost of performance bonds required under FAR 52.228-15 for construction or major supply contracts.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Prepaid Contract Costs | Asset | 5,000.00 | - |
| Accounts Payable | Liability | - | 5,000.00 |
💡 Accountant's Note
Performance bonds are often required in government contracting to guarantee completion. These costs are generally allowable under FAR 31.205-4 and should be recorded as a prepaid asset and amortized over the period of performance.
Practitioner & Systems Framework
💻 ERP Architecture
Set up as a project-related prepaid expense to ensure the cost is allocated to the specific contract for which the bond was issued.
⚠️ Audit Flags
Excessive bond premiums relative to contract value or bonds on commercial-item contracts where not required.
📄 Required Documentation
Copy of the bond agreement, invoice from the surety company, and the specific FAR clause in the contract requiring the bond.
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Discussion & Community Questions
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