When it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.
Defining the Ratio
This ratio is calculated by dividing a business’ enterprise value into the company’s reserves. It provides financial analysts, investors and internal business stakeholders with a snapshot of a company’s reserves and the business’ likelihood of preserving operation growth. This standardizes valuations, thereby allowing analysts to compare company-to-company financials.
How to Calculate EV/2P
Enterprise Value (EV) / Total 2P Reserves
Defined as: Enterprise Value = Equity (open market price) + Debt (open market price) – Cash and Cash Equivalents
2P = Proven and Probable Reserves
Illustrating the Calculation
If a company’s capitalization is $300 million and debt consisting of $225 million, along with $30 million for proven reserve value, $20 million in probable reserves, and $25 million in possible reserves, the company’s resulting enterprise value becomes:
$300 million + $225 million = $525 million
The 2P reserves is:
$30 million + $20 million = $50 million
Plugging the numbers into the original formula, it’s: $525 million / $50 million = 10.5x (multiple)
Based on the resulting 10.5 multiple, this ratio provides a current valuation that translates to for every $1 in 2P reserves equals $10.50 of a market valuation.
Reserves are how internal/external stakeholders value the production/growth potential of oil/gas companies. It’s broken down into two categories:
1.) P1 are proven reserves, which are the highest caliber reserves. There’s at least a 9 in 10 percent likelihood (or more) of recoverable reserves. It’s also known as P90.
2.) Probable reserve (also known as P50) has an even chance of either non-recoverability or realized recoverability. This is the next best, but a lesser grade than P1.
These two resource categories are referred to as 2P.
Putting it in Perspective
Depending on the company’s calculated EV/2P Ratio, the business owner or investor can determine a course of action to take.
If it’s higher, it’s more highly valued than its competitors based on the same level of 2P reserves; therefore, the company’s shares are more expensive against its peers. This can give investors pause because other undervalued stocks are more attractive due to a higher likelihood they’ll appreciate.
However, if a company is valued higher, but the company is more efficient or a higher performer, investors also may be interested because its production and earnings justify the higher valuation. That’s why looking at the metric in a silo is not effective.
Debt Concerns
When it comes to debt and analyzing this ratio, fossil fuel businesses are often highly levered since they use massive sums of debt for research and development and continued operations.
Since the EV value looks at debt and equity concurrently, analyzing a company’s capital structure is essential when comparing companies’ valuations. Essentially, if a company has too much debt and if interest rates suddenly increase or it can’t service debt if the price of crude plummets, it may run into debt servicing issues.
While this ratio is effective in providing a level playing field for analytical uses, it’s important to remember that it needs to be used in conjunction with comprehensive financial analysis.
Version 6
What is the EV/2P Ratio?
When it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.
Defining the Ratio
This ratio is calculated by dividing a business’ enterprise value into the company’s reserves. It provides financial analysts, investors and internal business stakeholders with a snapshot of a company’s reserves and the business’ likelihood of preserving operation growth. This standardizes valuations, thereby allowing analysts to compare company-to-company financials.
How to Calculate EV/2P
Enterprise Value (EV) / Total 2P ReservesDefined as: Enterprise Value = Equity (open market price) + Debt (open market price) – Cash and Cash Equivalents2P = Proven and Probable Reserves
Illustrating the Calculation
If a company’s capitalization is $300 million and debt consisting of $225 million, along with $30 million for proven reserve value, $20 million in probable reserves, and $25 million in possible reserves, the company’s resulting enterprise value becomes:$300 million + $225 million = $525 millionThe 2P reserves is:$30 million + $20 million = $50 millionPlugging the numbers into the original formula, it’s: $525 million / $50 million = 10.5x (multiple)Based on the resulting 10.5 multiple, this ratio provides a current valuation that translates to for every $1 in 2P reserves equals $10.50 of a
Putting it in Perspective
Depending on the company’s calculated EV/2P Ratio, the business owner or investor can determine a course of action to take.If it’s higher, it’s more highly valued than its competitors based on the same level of 2P reserves; therefore, the company’s shares are more expensive against its peers.
Debt Concerns
When it comes to debt and analyzing this ratio, fossil fuel businesses are often highly levered since they use massive sums of debt for research and development and continued operations.Since the EV value looks at debt and equity concurrently, analyzing a company’s capital structure is essential when comparing companies’ valuations.
Understanding the EV/2P Ratio
May 1, 2026 · Blog, General Business News
⏱ 5 min read
When it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.
Defining the Ratio
This ratio is calculated by dividing a business’ enterprise value into the company’s reserves. It provides financial analysts, investors and internal business stakeholders with a snapshot of a company’s reserves and the business’ likelihood of preserving operation growth. This standardizes valuations, thereby allowing analysts to compare company-to-company financials.
How to Calculate EV/2P
Enterprise Value (EV) / Total 2P Reserves
Defined as: Enterprise Value = Equity (open market price) + Debt (open market price) – Cash and Cash Equivalents
2P = Proven and Probable Reserves
Illustrating the Calculation
If a company’s capitalization is $300 million and debt consisting of $225 million, along with $30 million for proven reserve value, $20 million in probable reserves, and $25 million in possible reserves, the company’s resulting enterprise value becomes:
$300 million + $225 million = $525 million
The 2P reserves is:
$30 million + $20 million = $50 million
Plugging the numbers into the original formula, it’s: $525 million / $50 million = 10.5x (multiple)
Based on the resulting 10.5 multiple, this ratio provides a current valuation that translates to for every $1 in 2P reserves equals $10.50 of a market valuation.
Reserves are how internal/external stakeholders value the production/growth potential of oil/gas companies. It’s broken down into two categories:
1.) P1 are proven reserves, which are the highest caliber reserves. There’s at least a 9 in 10 percent likelihood (or more) of recoverable reserves. It’s also known as P90.
2.) Probable reserve (also known as P50) has an even chance of either non-recoverability or realized recoverability. This is the next best, but a lesser grade than P1.
These two resource categories are referred to as 2P.
Putting it in Perspective
Depending on the company’s calculated EV/2P Ratio, the business owner or investor can determine a course of action to take.
If it’s higher, it’s more highly valued than its competitors based on the same level of 2P reserves; therefore, the company’s shares are more expensive against its peers. This can give investors pause because other undervalued stocks are more attractive due to a higher likelihood they’ll appreciate.
However, if a company is valued higher, but the company is more efficient or a higher performer, investors also may be interested because its production and earnings justify the higher valuation. That’s why looking at the metric in a silo is not effective.
Debt Concerns
When it comes to debt and analyzing this ratio, fossil fuel businesses are often highly levered since they use massive sums of debt for research and development and continued operations.
Since the EV value looks at debt and equity concurrently, analyzing a company’s capital structure is essential when comparing companies’ valuations. Essentially, if a company has too much debt and if interest rates suddenly increase or it can’t service debt if the price of crude plummets, it may run into debt servicing issues.
While this ratio is effective in providing a level playing field for analytical uses, it’s important to remember that it needs to be used in conjunction with comprehensive financial analysis.
Version 6
What is the EV/2P Ratio?
When it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.
Defining the Ratio
This ratio is calculated by dividing a business’ enterprise value into the company’s reserves. It provides financial analysts, investors and internal business stakeholders with a snapshot of a company’s reserves and the business’ likelihood of preserving operation growth. This standardizes valuations, thereby allowing analysts to compare company-to-company financials.
How to Calculate EV/2P
Enterprise Value (EV) / Total 2P ReservesDefined as: Enterprise Value = Equity (open market price) + Debt (open market price) – Cash and Cash Equivalents2P = Proven and Probable Reserves
Illustrating the Calculation
If a company’s capitalization is $300 million and debt consisting of $225 million, along with $30 million for proven reserve value, $20 million in probable reserves, and $25 million in possible reserves, the company’s resulting enterprise value becomes:$300 million + $225 million = $525 millionThe 2P reserves is:$30 million + $20 million = $50 millionPlugging the numbers into the original formula, it’s: $525 million / $50 million = 10.5x (multiple)Based on the resulting 10.5 multiple, this ratio provides a current valuation that translates to for every $1 in 2P reserves equals $10.50 of a
Putting it in Perspective
Depending on the company’s calculated EV/2P Ratio, the business owner or investor can determine a course of action to take.If it’s higher, it’s more highly valued than its competitors based on the same level of 2P reserves; therefore, the company’s shares are more expensive against its peers.
Debt Concerns
When it comes to debt and analyzing this ratio, fossil fuel businesses are often highly levered since they use massive sums of debt for research and development and continued operations.Since the EV value looks at debt and equity concurrently, analyzing a company’s capital structure is essential when comparing companies’ valuations.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
If the IRS sends notice that you’re being audited, you’re likely to become anxious. However, not all audits mean you did something wrong. In most cases, it is simply a matter of verifying information on a tax return or perhaps correcting a minor error. Knowing what to expect – and how to respond – can help alleviate stress and make the audit more manageable.
An IRS audit (also referred to as an examination) is a review of your records to confirm that the information on your tax return was reported accurately and follows tax law. The best way to prepare for an audit is to respond on time, present organized and complete records, be cooperative, and communicate professionally.
Technically, most audits are triggered via an automated scoring system referred to as the DIF, which stands for Discriminant Information Function. The system flags something on your tax return that stood out. This could be inconsistencies, missing income, unusually high deductions, or inputs that don’t match information the IRS already has. Here are three key facts about IRS timing for audits:
The IRS generally looks back three years based on the statute of limitations
Most audits are related to returns filed within the past two years
In cases of substantial errors, audits can extend up to the last six years, especially in cases where it is believed that more than 25 percent of gross income was omitted from the filing
There is no statute of limitations in cases of fraud or failure to file
The Audit Process
Almost all IRS audits start with a letter stating that your return has been selected for examination. This notice will be sent by mail – not a phone call, text, or email. The letter will include the name of your assigned reviewer, his or her IRS identification number, and phone number. You should call the IRS directly to verify this information, as scammers are known to impersonate the IRS to steal money or personal data.
You may be asked to provide a variety of specific documents based on what issue(s) triggered the audit. Be sure to provide copies, not originals. Depending on your situation, the requested documents could include:
Income records
Investment statements
Bank forms
Receipts and bills
Canceled checks
Legal documents (such as divorce or custody agreements)
Loan agreements and settlement statements
Travel logs, diaries, or ticket stubs
Medical and dental records
Theft or loss of documentation (insurance claims, photos, police reports)
Employment records
Schedule K-1 forms for partnerships or S corporations
The following are the three types of IRS Audits:
Correspondence Audit – These are the least complex and are conducted entirely by mail. Sometimes the IRS simply identifies a math error or missing income and asks for payment or clarification. You can either pay the amount due or respond with documentation if you believe the IRS is incorrect.
Office Audit – An office audit requires you to visit an IRS office with the requested records. You will receive an Information Document Request (IDR) form detailing what to bring. Showing up with organized records can help resolve these audits quickly.
Field Audit – The field audit is the most extensive. An IRS agent will come to your home or business to review records. Although you will receive an IDR in advance, the agent may decide to escalate the review if he notices any “large, unusual or questionable” (LUQ) items.
The key points to remember are that poor recordkeeping and/or lack of cooperation tend to trigger a more detailed and time-consuming audit.
Once the Audit Is Complete
After the audit, the IRS will issue a report describing its findings. It may determine that no changes are necessary to your return; that you owe additional tax; or that you may be owed a refund. Should you disagree with the findings, you have options:
Request to meet with an IRS manager
Use mediation or alternative dispute resolution
File an appeal with the IRS
Take the case to court if necessary
If you agree with the audit findings, you’ll need to sign the examination report and choose from various payment options if you owe any taxes.
The Audit Process
Almost all IRS audits start with a letter stating that your return has been selected for examination. This notice will be sent by mail – not a phone call, text, or email. The letter will include the name of your assigned reviewer, his or her IRS identification number, and phone number. You should call the IRS directly to verify this information, as scammers are known to impersonate the IRS to steal money or personal data.You may be asked to provide a variety of specific documents based on what issue(s) triggered the audit. Be sure to provide copies, not originals.
Once the Audit Is Complete
After the audit, the IRS will issue a report describing its findings. It may determine that no changes are necessary to your return; that you owe additional tax; or that you may be owed a refund. Should you disagree with the findings, you have options:Request to meet with an IRS managerUse mediation or alternative dispute resolutionFile an appeal with the IRSTake the case to court if necessaryIf you agree with the audit findings, you’ll need to sign the examination report and choose from various payment options if you owe any taxes.
What to Expect with an IRS Audit
May 1, 2026 · Blog, Financial Planning
⏱ 5 min read
If the IRS sends notice that you’re being audited, you’re likely to become anxious. However, not all audits mean you did something wrong. In most cases, it is simply a matter of verifying information on a tax return or perhaps correcting a minor error. Knowing what to expect – and how to respond – can help alleviate stress and make the audit more manageable.
An IRS audit (also referred to as an examination) is a review of your records to confirm that the information on your tax return was reported accurately and follows tax law. The best way to prepare for an audit is to respond on time, present organized and complete records, be cooperative, and communicate professionally.
Technically, most audits are triggered via an automated scoring system referred to as the DIF, which stands for Discriminant Information Function. The system flags something on your tax return that stood out. This could be inconsistencies, missing income, unusually high deductions, or inputs that don’t match information the IRS already has. Here are three key facts about IRS timing for audits:
The IRS generally looks back three years based on the statute of limitations
Most audits are related to returns filed within the past two years
In cases of substantial errors, audits can extend up to the last six years, especially in cases where it is believed that more than 25 percent of gross income was omitted from the filing
There is no statute of limitations in cases of fraud or failure to file
The Audit Process
Almost all IRS audits start with a letter stating that your return has been selected for examination. This notice will be sent by mail – not a phone call, text, or email. The letter will include the name of your assigned reviewer, his or her IRS identification number, and phone number. You should call the IRS directly to verify this information, as scammers are known to impersonate the IRS to steal money or personal data.
You may be asked to provide a variety of specific documents based on what issue(s) triggered the audit. Be sure to provide copies, not originals. Depending on your situation, the requested documents could include:
Income records
Investment statements
Bank forms
Receipts and bills
Canceled checks
Legal documents (such as divorce or custody agreements)
Loan agreements and settlement statements
Travel logs, diaries, or ticket stubs
Medical and dental records
Theft or loss of documentation (insurance claims, photos, police reports)
Employment records
Schedule K-1 forms for partnerships or S corporations
The following are the three types of IRS Audits:
Correspondence Audit – These are the least complex and are conducted entirely by mail. Sometimes the IRS simply identifies a math error or missing income and asks for payment or clarification. You can either pay the amount due or respond with documentation if you believe the IRS is incorrect.
Office Audit – An office audit requires you to visit an IRS office with the requested records. You will receive an Information Document Request (IDR) form detailing what to bring. Showing up with organized records can help resolve these audits quickly.
Field Audit – The field audit is the most extensive. An IRS agent will come to your home or business to review records. Although you will receive an IDR in advance, the agent may decide to escalate the review if he notices any “large, unusual or questionable” (LUQ) items.
The key points to remember are that poor recordkeeping and/or lack of cooperation tend to trigger a more detailed and time-consuming audit.
Once the Audit Is Complete
After the audit, the IRS will issue a report describing its findings. It may determine that no changes are necessary to your return; that you owe additional tax; or that you may be owed a refund. Should you disagree with the findings, you have options:
Request to meet with an IRS manager
Use mediation or alternative dispute resolution
File an appeal with the IRS
Take the case to court if necessary
If you agree with the audit findings, you’ll need to sign the examination report and choose from various payment options if you owe any taxes.
The Audit Process
Almost all IRS audits start with a letter stating that your return has been selected for examination. This notice will be sent by mail – not a phone call, text, or email. The letter will include the name of your assigned reviewer, his or her IRS identification number, and phone number. You should call the IRS directly to verify this information, as scammers are known to impersonate the IRS to steal money or personal data.You may be asked to provide a variety of specific documents based on what issue(s) triggered the audit. Be sure to provide copies, not originals.
Once the Audit Is Complete
After the audit, the IRS will issue a report describing its findings. It may determine that no changes are necessary to your return; that you owe additional tax; or that you may be owed a refund. Should you disagree with the findings, you have options:Request to meet with an IRS managerUse mediation or alternative dispute resolutionFile an appeal with the IRSTake the case to court if necessaryIf you agree with the audit findings, you’ll need to sign the examination report and choose from various payment options if you owe any taxes.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, it’s used with the customer lifetime value (LTV) metric, which also projects the customer’s profitability to calculate the newly acquired customer’s value.
It’s primarily used to measure a business’ sales and marketing departments to figure out their profitability, profit margin and return on investment figures.
How to Calculate
CAC = Sales and Marketing Expense/Number of New Customers
Where: Examples of the expenses include product and service promotion expenditures, special compensation and commissions, regular wage payments, and operating expenses.
The tally of newly acquired customers is simply how many new, unique contracts the business acquired. It’s important to keep the expenses and customer acquisition numbers consistent over the same periods.
Why It’s Important
Business owners and their managers, along with investors, can look at sales and marketing efforts from a return on investment on their expenditures and outcomes. For example, there could be multiple channels that sales and marketing utilize to obtain new customers over a quarter, half-year, or 12-month period (such as email marketing, social media marketing, conferences, etc.). Based upon each channel, the customer acquisition cost is determined by dividing the financial outlay per customer acquired.
From there, each channel can be analyzed to see which one works well and, equally important, which ones don’t work well and either need to be discontinued or modified. Internal stakeholders and external investors (both existing and potential) can look at trends to see if existing management is productive or needs to be replaced with more competent individuals.
Accounting Considerations
Based on FASB’s Accounting Standards Codification 340-40, businesses are required to document and capitalize incremental costs of securing new customer business if the related expenses are projected to be recouped.
An incremental cost in the scope of obtaining a contract is a cost an entity incurs to obtain a contract that wouldn’t have been incurred if the contract hadn’t been obtained.
While a sales commission (be it fixed or a percentage of a new contract) may be considered an eligible incremental cost to one of its employees, it’s not necessarily always the case. Rather, the true test of whether an incremental cost is capitalizable depends on the subjective interpretation of whether a mandated financial expenditure for an incremental cost is attributed to signing a contract with a new customer.
The following sample situations often require more investigation to determine whether the capitalization of costs is applicable:
Equity issuances based upon meeting production and essential function goals
Employee compensation according to previous years’ executed contracts
Sales commissions allocated over multiple time frames and/or to more than one employee for a single contract.
ASC 340-40 also stipulates the amortization schedule of capitalization costs of obtaining a customer contract on a scheduled timeline that follows the delivery to the customer of the contracted goods or services.
Conclusion
While the customer acquisition cost may be straightforward, when it comes to subjective cases, businesses that have experience with murkier situations are able to make the most of their subjective sales and marketing expenses when navigating the tax and accounting landscape.
What is the Customer Acquisition Cost?
The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, it’s used with the customer lifetime value (LTV) metric, which also projects the customer’s profitability to calculate the newly acquired customer’s value.It’s primarily used to measure a business’ sales and marketing departments to figure out their profitability, profit margin and return on investment figures.
How to Calculate
CAC = Sales and Marketing Expense/Number of New CustomersWhere: Examples of the expenses include product and service promotion expenditures, special compensation and commissions, regular wage payments, and operating expenses.The tally of newly acquired customers is simply how many new, unique contracts the business acquired. It’s important to keep the expenses and customer acquisition numbers consistent over the same periods.
Why It’s Important
Business owners and their managers, along with investors, can look at sales and marketing efforts from a return on investment on their expenditures and outcomes. For example, there could be multiple channels that sales and marketing utilize to obtain new customers over a quarter, half-year, or 12-month period (such as email marketing, social media marketing, conferences, etc.).
Accounting Considerations
Based on FASB’s Accounting Standards Codification 340-40, businesses are required to document and capitalize incremental costs of securing new customer business if the related expenses are projected to be recouped.An incremental cost in the scope of obtaining a contract is a cost an entity incurs to obtain a contract that wouldn’t have been incurred if the contract hadn’t been obtained.While a sales commission (be it fixed or a percentage of a new contract) may be considered an eligible incremental cost to one of its employees, it’s not necessarily always the case.
Conclusion
While the customer acquisition cost may be straightforward, when it comes to subjective cases, businesses that have experience with murkier situations are able to make the most of their subjective sales and marketing expenses when navigating the tax and accounting landscape.Â
Understanding the Customer Acquisition Cost
May 1, 2026 · Accounting News, Blog
⏱ 5 min read
The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, it’s used with the customer lifetime value (LTV) metric, which also projects the customer’s profitability to calculate the newly acquired customer’s value.
It’s primarily used to measure a business’ sales and marketing departments to figure out their profitability, profit margin and return on investment figures.
How to Calculate
CAC = Sales and Marketing Expense/Number of New Customers
Where: Examples of the expenses include product and service promotion expenditures, special compensation and commissions, regular wage payments, and operating expenses.
The tally of newly acquired customers is simply how many new, unique contracts the business acquired. It’s important to keep the expenses and customer acquisition numbers consistent over the same periods.
Why It’s Important
Business owners and their managers, along with investors, can look at sales and marketing efforts from a return on investment on their expenditures and outcomes. For example, there could be multiple channels that sales and marketing utilize to obtain new customers over a quarter, half-year, or 12-month period (such as email marketing, social media marketing, conferences, etc.). Based upon each channel, the customer acquisition cost is determined by dividing the financial outlay per customer acquired.
From there, each channel can be analyzed to see which one works well and, equally important, which ones don’t work well and either need to be discontinued or modified. Internal stakeholders and external investors (both existing and potential) can look at trends to see if existing management is productive or needs to be replaced with more competent individuals.
Accounting Considerations
Based on FASB’s Accounting Standards Codification 340-40, businesses are required to document and capitalize incremental costs of securing new customer business if the related expenses are projected to be recouped.
An incremental cost in the scope of obtaining a contract is a cost an entity incurs to obtain a contract that wouldn’t have been incurred if the contract hadn’t been obtained.
While a sales commission (be it fixed or a percentage of a new contract) may be considered an eligible incremental cost to one of its employees, it’s not necessarily always the case. Rather, the true test of whether an incremental cost is capitalizable depends on the subjective interpretation of whether a mandated financial expenditure for an incremental cost is attributed to signing a contract with a new customer.
The following sample situations often require more investigation to determine whether the capitalization of costs is applicable:
Equity issuances based upon meeting production and essential function goals
Employee compensation according to previous years’ executed contracts
Sales commissions allocated over multiple time frames and/or to more than one employee for a single contract.
ASC 340-40 also stipulates the amortization schedule of capitalization costs of obtaining a customer contract on a scheduled timeline that follows the delivery to the customer of the contracted goods or services.
Conclusion
While the customer acquisition cost may be straightforward, when it comes to subjective cases, businesses that have experience with murkier situations are able to make the most of their subjective sales and marketing expenses when navigating the tax and accounting landscape.
What is the Customer Acquisition Cost?
The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, it’s used with the customer lifetime value (LTV) metric, which also projects the customer’s profitability to calculate the newly acquired customer’s value.It’s primarily used to measure a business’ sales and marketing departments to figure out their profitability, profit margin and return on investment figures.
How to Calculate
CAC = Sales and Marketing Expense/Number of New CustomersWhere: Examples of the expenses include product and service promotion expenditures, special compensation and commissions, regular wage payments, and operating expenses.The tally of newly acquired customers is simply how many new, unique contracts the business acquired. It’s important to keep the expenses and customer acquisition numbers consistent over the same periods.
Why It’s Important
Business owners and their managers, along with investors, can look at sales and marketing efforts from a return on investment on their expenditures and outcomes. For example, there could be multiple channels that sales and marketing utilize to obtain new customers over a quarter, half-year, or 12-month period (such as email marketing, social media marketing, conferences, etc.).
Accounting Considerations
Based on FASB’s Accounting Standards Codification 340-40, businesses are required to document and capitalize incremental costs of securing new customer business if the related expenses are projected to be recouped.An incremental cost in the scope of obtaining a contract is a cost an entity incurs to obtain a contract that wouldn’t have been incurred if the contract hadn’t been obtained.While a sales commission (be it fixed or a percentage of a new contract) may be considered an eligible incremental cost to one of its employees, it’s not necessarily always the case.
Conclusion
While the customer acquisition cost may be straightforward, when it comes to subjective cases, businesses that have experience with murkier situations are able to make the most of their subjective sales and marketing expenses when navigating the tax and accounting landscape.Â
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Safeguard American Voter Eligibility Act (S 1383) – Also known as the SAVE America Act, this bill passed in the House on Feb. 11 but stalled in the Senate due to the Democrat filibuster. The bill would require states to verify documentary proof of citizenship and current residential address when Americans apply for federal voter registration. The easiest documentation would be a birth certificate or passport that confirms their current legal name (most women change their last name after marriage, so they require additional documentation, such as a marriage certificate). However, research from the Bipartisan Policy Center found that nearly 1 in 10 registered voters do not have access to their birth certificate, and 52 percent do not have an unexpired passport with their current legal name. Note that these registration requirements kick in any time current voters update their registration, such as for an address change or to switch political party affiliation. The bill also requires a specific type of photo ID to cast a ballot. A driver’s license is acceptable, but not student IDs or a tribal ID that lacks an expiration date (which tribal IDs do not contain). The president is also insistent that the legislation include unrelated restrictions for transgender Americans. The debate over this bill continues in the Senate.
Department of Homeland Security Appropriations Act, 2026 (HR 7744) – This is the bill that has held up appropriations for the Department of Homeland Security (DHS) for the fiscal year ending Sept. 30, 2026. The bill was introduced by Rep. Tom Cole (R-OK) on March 2 and passed in the House on March 5. However, it triggered a partial government shutdown and is under heated debate in the Senate. Republicans insist on passing the complete bill with increased funding for national security and border protection. The legislation also includes provisions prohibiting funds for Diversity, Equity, and Inclusion and Critical Theory programs, as well as abortions and gender-affirming care for ICE detainees. Senate Democrats are seeking to include guardrails that would prohibit ICE agents from wearing masks or entering homes, schools, hospitals, etc., without a judicial warrant. Currently at a stalemate, Republicans will likely try to pass funding for the Department of Homeland Security (DHS), more money for ICE, and components of the Save America Act through a budget reconciliation bill.
Small Business Innovation and Economic Security Act (S 3971) – On March 3, Sen. Joni Ernst (R-IA) introduced this bipartisan bill to reauthorize the Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs. These programs, also known as America’s Seed Fund, expired last September. The new bill enables certain agencies to award a portion of their funds to larger projects focused on technology transition, rather than incremental R&D. These agencies, which include the Departments of Defense, Energy and Homeland Security, the Environmental Protection Agency and the National Aeronautics and Space Administration, may award up to $30 million to small business projects that prioritize national security, customer demand and undercapitalized technology areas. The bill passed in the Senate on March 3, the House on March 17, and was signed into law by the president on April 13.
Tyler’s Law (S 921) – The purpose of this bill is to issue guidance for hospital emergency departments to implement fentanyl testing as a routine procedure for patients experiencing an overdose. The current standard procedure tests for marijuana, cocaine, amphetamines, PCP, and natural and semisynthetic opioids, but not synthetic opioids like fentanyl – something many ER practitioners are unaware of. The bill is named for Tyler Shamash, a California teenager who died of an overdose after he passed a drug test in an emergency room that did not include fentanyl. The bipartisan bill was introduced by Sen. Jim Banks (R-IN) on March 10, 2025. It passed in the Senate on March 23, 2026, and is currently awaiting a vote in the House.
To require the Secretary of Homeland Security to designate Haiti for Temporary Protected Status (HR 1689) – This bill was introduced on Feb. 27, 2025, and passed in the House on April 16, 2026. Amid rampant immigration enforcement, this bill is designed to extend temporary protected status for Haitian migrants through 2029. TPS is intended to provide a safe haven for foreign nationals whose home countries are experiencing temporary unsafe conditions, such as from a natural disaster or civil unrest, for which Haitians continue to qualify. This largely partisan legislation faces an uphill battle in the Senate, as well as a likely veto by the president. In February, the president revoked TPS status for approximately 330,000 Haitians in the United States. However, enforcement of that order is currently halted, and its constitutionality is under consideration by the U.S. Supreme Court.
Stalemates in Voting Rights and ICE Legislation; Small Business Funding Expanded
May 1, 2026 · Blog, Congress at Work
⏱ 4 min read
Safeguard American Voter Eligibility Act (S 1383) – Also known as the SAVE America Act, this bill passed in the House on Feb. 11 but stalled in the Senate due to the Democrat filibuster. The bill would require states to verify documentary proof of citizenship and current residential address when Americans apply for federal voter registration. The easiest documentation would be a birth certificate or passport that confirms their current legal name (most women change their last name after marriage, so they require additional documentation, such as a marriage certificate). However, research from the Bipartisan Policy Center found that nearly 1 in 10 registered voters do not have access to their birth certificate, and 52 percent do not have an unexpired passport with their current legal name. Note that these registration requirements kick in any time current voters update their registration, such as for an address change or to switch political party affiliation. The bill also requires a specific type of photo ID to cast a ballot. A driver’s license is acceptable, but not student IDs or a tribal ID that lacks an expiration date (which tribal IDs do not contain). The president is also insistent that the legislation include unrelated restrictions for transgender Americans. The debate over this bill continues in the Senate.
Department of Homeland Security Appropriations Act, 2026 (HR 7744) – This is the bill that has held up appropriations for the Department of Homeland Security (DHS) for the fiscal year ending Sept. 30, 2026. The bill was introduced by Rep. Tom Cole (R-OK) on March 2 and passed in the House on March 5. However, it triggered a partial government shutdown and is under heated debate in the Senate. Republicans insist on passing the complete bill with increased funding for national security and border protection. The legislation also includes provisions prohibiting funds for Diversity, Equity, and Inclusion and Critical Theory programs, as well as abortions and gender-affirming care for ICE detainees. Senate Democrats are seeking to include guardrails that would prohibit ICE agents from wearing masks or entering homes, schools, hospitals, etc., without a judicial warrant. Currently at a stalemate, Republicans will likely try to pass funding for the Department of Homeland Security (DHS), more money for ICE, and components of the Save America Act through a budget reconciliation bill.
Small Business Innovation and Economic Security Act (S 3971) – On March 3, Sen. Joni Ernst (R-IA) introduced this bipartisan bill to reauthorize the Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs. These programs, also known as America’s Seed Fund, expired last September. The new bill enables certain agencies to award a portion of their funds to larger projects focused on technology transition, rather than incremental R&D. These agencies, which include the Departments of Defense, Energy and Homeland Security, the Environmental Protection Agency and the National Aeronautics and Space Administration, may award up to $30 million to small business projects that prioritize national security, customer demand and undercapitalized technology areas. The bill passed in the Senate on March 3, the House on March 17, and was signed into law by the president on April 13.
Tyler’s Law (S 921) – The purpose of this bill is to issue guidance for hospital emergency departments to implement fentanyl testing as a routine procedure for patients experiencing an overdose. The current standard procedure tests for marijuana, cocaine, amphetamines, PCP, and natural and semisynthetic opioids, but not synthetic opioids like fentanyl – something many ER practitioners are unaware of. The bill is named for Tyler Shamash, a California teenager who died of an overdose after he passed a drug test in an emergency room that did not include fentanyl. The bipartisan bill was introduced by Sen. Jim Banks (R-IN) on March 10, 2025. It passed in the Senate on March 23, 2026, and is currently awaiting a vote in the House.
To require the Secretary of Homeland Security to designate Haiti for Temporary Protected Status (HR 1689) – This bill was introduced on Feb. 27, 2025, and passed in the House on April 16, 2026. Amid rampant immigration enforcement, this bill is designed to extend temporary protected status for Haitian migrants through 2029. TPS is intended to provide a safe haven for foreign nationals whose home countries are experiencing temporary unsafe conditions, such as from a natural disaster or civil unrest, for which Haitians continue to qualify. This largely partisan legislation faces an uphill battle in the Senate, as well as a likely veto by the president. In February, the president revoked TPS status for approximately 330,000 Haitians in the United States. However, enforcement of that order is currently halted, and its constitutionality is under consideration by the U.S. Supreme Court.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
It’s not too early to start planning for next year: Check withholding now
Even though the tax filing deadline for tax year 2025 passed a couple weeks ago, it’s not too early to start planning for next filing season. Planning now can help taxpayers avoid surprises next year. One action that can be taken is checking for proper tax withholding.
What is withholding? Taxpayers need to pay their tax as they receive their income, and they do this through withholding. For employees, “withholding” refers to the federal income tax portion of each paycheck that an employer takes out for tax purposes. It can also be the amount from earnings self-employed people and others voluntarily set aside to pay their estimated taxes.
How taxpayers can check their withholding The IRS Tax Withholding Estimator is a free, easy-to-use tool that helps workers and retirees estimate the amount of federal income tax to withhold from their paychecks now for the taxes they will owe next year.
The estimator reflects the changes to credits and deductions under the One, Big, Beautiful Bill. This includes the deductions for tips, overtime, car loan interest and enhanced deduction for seniors. It also accounts for updates tied to family-related credits, homeownership, and charitable giving.
What are the benefits of using the IRS Tax Withholding Estimator? By using the estimator, taxpayers can manage their estimates based on any personal life change, such as buying a home, changing jobs, having a child or changing their marital status.
For people who recently completed their 2025 tax return, the IRS advises using the IRS Tax Withholding Estimator to consider all income sources such as full-time wages, side jobs and any sale of services or goods.
Thank you for subscribing to IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov.
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When it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.
If the IRS sends notice that you’re being audited, you’re likely to become anxious. However, not all audits mean you did something wrong. In most cases, it is simply a matter of verifying information on a tax return or perhaps correcting a minor error. Knowing what to expect – and how to respond – can help alleviate stress and make the audit more manageable.
The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, it’s used with the customer lifetime value (LTV) metric, which also projects the customer’s profitability to calculate the newly acquired customer’s value.
Safeguard American Voter Eligibility Act (S 1383) – Also known as the SAVE America Act, this bill passed in the House on Feb. 11 but stalled in the Senate due to the Democrat filibuster. The bill would require states to verify documentary proof of citizenship and current residential address when Americans apply for federal voter registration. The easiest documentation would be a birth certificate or passport that confirms their current legal name (most women change their last name after marriage, so they require additional documentation, such as a marriage certificate). However, research from the Bipartisan Policy Center found that nearly 1 in 10 registered voters do not have access to their birth certificate, and 52 percent do not have an unexpired passport with their current legal name. Note that these registration requirements kick in any time current voters update their registration, such as for an address change or to switch political party affiliation. The bill also requires a specific type of photo ID to cast a ballot. A driver’s license is acceptable, but not student IDs or a tribal ID that lacks an expiration date (which tribal IDs do not contain). The president is also insistent that the legislation include unrelated restrictions for transgender Americans. The debate over this bill continues in the Senate.
