Commission Accounting Definition

Commission Accounting can easily be defined as a revenue or expense to the company during the process of a sale. Typically this type of accounting is used for real estate firms who work off of commission or a similar type of sales company. The expense side of accounting can be based off of pay to employees which would be the amount of commission each employee makes off of a sale. Typically, there is a percentage amount that a company or person receives upon the receipt of a sale. However, some companies have been known to accept or pay their employees a fixed amount based off each individual sale. The policies are individual to each company and it is up to each customer or employee to find the exact terms of the agreement.

Commission Accounting Example

Frank works at Blimp Real Estate Co. and has been hired by Growing Fast Inc. to search out and find land to build on, or a suitable building in which Growing Fast can move into for its expansion. First, Frank explains to the company that the commission for either is 5% of the costs. Frank has the perfect building in mind in downtown Houston, Texas. Growing Fast is impressed with the place and decides that they will in fact buy the building. Frank then sets up the contract between the buyer and the owner of the building. The final price is set for $20 million, thus Blimp Real Estate receives $1 million in commission revenue. However, Blimp also has a commission expense to record because Frank has an incentive package stating that he receives 10% of the commission on each sale. Therefore, Frank will receive $100,000 for the sale.
If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.

[box]Strategic CFO Lab Member Extra
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]

ARTICLES YOU MIGHT LIKE

The Accounting Gap Between Large and Small Companies

March 8, 2023

The Accounting Gap: It’s unfortunate, but true. A large gap exists between the accounting departments of large or publicly traded companies and smaller or private companies. In our past 25 years of consulting we’ve noticed that more often than not, these smaller/private companies will fill the gap with Bookkeepers, rather than the degreed Accountants/CPAs they

The Struggles of Private Company Accounting

June 9, 2022

Building your Accounting Department… When I meet a business owner operating at a successful $10+ mil in revenue I often hear them say “My CPA…” and I immediately know they are referring to a tax CPA. One thing ALL entrepreneurs have in common is that they have to file a tax return. So from day

Financial Ratios

September 24, 2021

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

MARCH 28TH-31ST 2022

Days

Hours

Min

June 12-15th, 2023

Days

Hours

Min

SHARE THIS ARTICLE