How to Handle Sales Commissions in Financial Statements

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Sales commission can have different reporting requirements depending on the transaction type. When a company earns sales commissions as part of selling goods or services, the commissions are revenue. If the company pays commissions to another business or to employees, they are an expense. Accountants must carefully review all transactions that include sales commissions. Either way, the sales commissions are a part of the company’s income statement. The different types of sales commission will appear in different parts of the financial statement.

Report earned sales commissions as revenue in the first portion of the income statement. A separate line is necessary to report this income outside of the goods or services sold to consumers.

Record sales commissions paid to employees or other companies as an expense. Employee sales commission is the common name for accounts reporting these transactions. Commission expense is typically the account name when a company pays these charges to another business.

Include commission revenue earned in normal operating activities under the operating revenue section. Commission revenue for non-standard activities goes under an account called other income. Commission expenses are similar in their reporting. Normal commission expenses are an operating expense, while non-standard commission expenses are labeled other expense.

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References

  • "Intermediate Accounting"; David Spiceland, et al.; 2007
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