Contract cost
In accounting, contract cost means the incremental cost of obtaining a contract — typically a sales commission the entity would not have paid had the contract not been signed — recognized as an asset when expected to be recovered, then amortized as the related goods or services transfer. Expensing it when incurred is permitted if the amortization period would be one year or less.
Also called Capitalized commission.
Authority: ASC 340-40 (opens in a new tab). Sources
A real example, booked
A rep closes a three-year customer contract and is paid a $36,000 commission on March 15, 2026. The company expects the customer to stay for 36 months, so the commission is capitalized and amortized evenly from April 1, 2026: $1,000 a month.
Transaction · March 15, 2026
JE-1 15 Mar 2026 Manual posted
Pay the commission and capitalize it.
Read-onlyBalanced
- Commission paid
- $36,000
- Monthly amortization
- $1,000
- Asset after month 1
- $35,000
Mistakes people make
What goes wrong in a real set of books, and what an accountant reviewing them catches.
Expensing every commission when it is paid, so the quarter a rep closes a big deal carries the whole cost and the quarters that earn the revenue carry none.
Capitalizing commissions that are not incremental, such as base salary or a bonus that depends on company results.
Amortizing over the contract term when renewals are expected and the renewal commission is much smaller.
What it is not called
Each of these means something else. Use one here and an accountant reading the product notices.
- deferred commission expense
- prepaid commission
Nearby in the catalog
No component names this concept outright. These sit in the same part of the system.
10Receivables (AR)
Family specAlso in Revenue recognition
Work with this concept
The calculators that compute it and the ledger payloads that carry it.
Defined in Lexicon. This page is generated from that document, so the two can't disagree.