Sub Specialty Contractor

I have a general question regarding GL insurance for equipment and where it should be booked. We are a specialty contractor and we book our equipment rental expense to specific projects in COGS. We also have the GL insurance expense for the equipment. I would like to post this cost to COGS, as it does relate to the expense of the equipment that we rent out from our sister company. My question is, could the GL insurance for the equipment be considered COGS or should it be booked to a general expense account instead? I would love to hear everyone's feedback.

Kathleen,
I'm assuming you mean coverage for rented and leased equipment that is covered under your g/l policy.  I have not seen a g/l policy that breaks out just this coverage and the premium for it, but you may be able to get that from your broker.  The answer is that you can do it either way, and it is acceptable.  What we do is charge the whole premium to COGS sold , as almost all of the coverages are related to work that is performed. This amount is then allocated to individual jobs based on hours worked on the job.  This is not an exact allocation for each job, but the amount for each job is close enough, relative to all jobs.

Hope this helps.

Regards,

Doug

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Doug Lyvers
Sunwest Electric, Inc.
Anaheim CA
(714) 630-8700
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Original Message:
Sent: 03-23-2020 17:47
From: Kathleen Baurax
Subject: GL insurance in COGS?

I have a general question regarding GL insurance for equipment and where it should be booked. We are a specialty contractor and we book our equipment rental expense to specific projects in COGS. We also have the GL insurance expense for the equipment. I would like to post this cost to COGS, as it does relate to the expense of the equipment that we rent out from our sister company. My question is, could the GL insurance for the equipment be considered COGS or should it be booked to a general expense account instead? I would love to hear everyone's feedback.

Kathleen,
I have been with companies that have posted Inland Marine insurance expense differently, but neither posted GL insurance to COGS.  In both companies, we posted GL insurance expense to general expense.  The difference was in the way each company posted Inland Marine expense.

With a GC I worked for, Inland Marine coverage was allocated to each piece of equipment owned by its proportional value to the overall insured value of the fleet .  Rental equipment did not receive an allocation of this expense.  The additional premium related to our equipment rental for the year was absorbed within the allocation to the owned fleet. 

With a specialty contractor I worked for, all insurance was posted to general expense. 

As Doug mentioned, either method is acceptable.  It is definitely more trouble to allocate the premiums to each piece of equipment, but for the GC in my case, it was determined to be worth the effort.

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Steve Hunt CPA
Cfo
Alto Construction Company, Inc.
Tampa FL
(813) 241-2586
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Original Message:
Sent: 03-23-2020 17:47
From: Kathleen Baurax
Subject: GL insurance in COGS?

I have a general question regarding GL insurance for equipment and where it should be booked. We are a specialty contractor and we book our equipment rental expense to specific projects in COGS. We also have the GL insurance expense for the equipment. I would like to post this cost to COGS, as it does relate to the expense of the equipment that we rent out from our sister company. My question is, could the GL insurance for the equipment be considered COGS or should it be booked to a general expense account instead? I would love to hear everyone's feedback.

In my opinion, GL premiums are directly related to job costs as the premiums are typically based on your job costs.  The difficult part is determining the method: how to calculate a rate and when to charge to the job.  We have determined a rate based on projected revenue for the year and then apply this rate at the beginning of the job.  You could also do this on a monthly basis as well.  the rate could also be determined based on projected cogs as well.

steve ezzell

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William Ezzell CCIFP, CPA
CFO
Ezzell & Associates
Leland NC
(910) 512-4610
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Original Message:
Sent: 03-23-2020 17:47
From: Kathleen Baurax
Subject: GL insurance in COGS?

I have a general question regarding GL insurance for equipment and where it should be booked. We are a specialty contractor and we book our equipment rental expense to specific projects in COGS. We also have the GL insurance expense for the equipment. I would like to post this cost to COGS, as it does relate to the expense of the equipment that we rent out from our sister company. My question is, could the GL insurance for the equipment be considered COGS or should it be booked to a general expense account instead? I would love to hear everyone's feedback.

Original Message------

I have a general question regarding GL insurance for equipment and where it should be booked. We are a specialty contractor and we book our equipment rental expense to specific projects in COGS. We also have the GL insurance expense for the equipment. I would like to post this cost to COGS, as it does relate to the expense of the equipment that we rent out from our sister company. My question is, could the GL insurance for the equipment be considered COGS or should it be booked to a general expense account instead? I would love to hear everyone's feedback.

I am a proponent of pushing Gen Liab insurance above the line into job costs as I believe you get a truer picture of your project margins. That said, the method of allocation can be tricky but as long as it's systematic and rational it will pass muster. 

I would emphasize the method of allocation and am curious as to how you're doing it. Our company "funds" Gen Liab insurance as a percentage of payroll dollars and jobs pay for it through burden allocation. That way it is consistently applied and only evaluated when significant changes in our insurance package are noted.

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Casey Gedgoudas, CPA
Controller
Birmingham AL
(205) 510-0296
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Original Message:
Sent: 03-23-2020 17:47
From: Kathleen Baurax
Subject: GL insurance in COGS?

I have a general question regarding GL insurance for equipment and where it should be booked. We are a specialty contractor and we book our equipment rental expense to specific projects in COGS. We also have the GL insurance expense for the equipment. I would like to post this cost to COGS, as it does relate to the expense of the equipment that we rent out from our sister company. My question is, could the GL insurance for the equipment be considered COGS or should it be booked to a general expense account instead? I would love to hear everyone's feedback.

Original Message------

I am a proponent of pushing Gen Liab insurance above the line into job costs as I believe you get a truer picture of your project margins. That said, the method of allocation can be tricky but as long as it's systematic and rational it will pass muster. 

I would emphasize the method of allocation and am curious as to how you're doing it. Our company "funds" Gen Liab insurance as a percentage of payroll dollars and jobs pay for it through burden allocation. That way it is consistently applied and only evaluated when significant changes in our insurance package are noted.

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Casey Gedgoudas, CPA
Controller
Birmingham AL
(205) 510-0296
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