Deferred Acquisition Cost (DAC) — Monthly Amortization
Releasing one month of the deferred acquisition cost to the income statement.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Agent Commission Expense (Amortized) | Expense (+) | 1,500.00 | - |
| Deferred Acquisition Costs (DAC Asset) | Asset (-) | - | 1,500.00 |
💡 Accountant's Note
DAC amortization spreads the cost of acquiring the policy over its life. JOD 18,000 DAC on a 12-month policy releases at JOD 1,500/month, matching the cost to the earned premium.
Practitioner & Systems Framework
💻 ERP Architecture
DAC amortisation is automatically calculated by the policy admin system in line with the premium earning pattern. For straight-line policies (most short-duration general insurance), the monthly amortisation is the DAC balance divided by the remaining policy months. The amortisation is posted to the GL as a monthly journal entry. The DAC balance per policy is tracked in the billing or policy sub-ledger. For cancelled policies, the remaining unamortised DAC balance is written off in the month of cancellation.
⚠️ Audit Flags
Auditors reconcile the DAC balance on the balance sheet to the underlying policy-level DAC sub-ledger. The amortisation rate should match the UPR earning rate — any divergence between DAC amortisation and premium earning requires explanation. Verify that the DAC balance is zero or nil for expired policies and that cancelled policies have been properly written off. The DAC balance should be tested for recoverability as part of the liability adequacy test.
📄 Required Documentation
Policy-level DAC schedule (opening balance, monthly amortisation, cancellation write-offs, closing balance), reconciliation of DAC sub-ledger to GL, amortisation methodology confirmation, and liability adequacy test supporting the DAC carrying value.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.