Definition of Commissions Revenues or Expenses
The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue. The company or party that pays the commissions will have commissions expense.
Accounting for Commissions Revenues
Under the accrual basis of accounting, the commissions do not have to be received in order to be reported as revenues. If a company has earned the commissions but has not yet received the money, the company should make an accrual adjusting entry so that its income statement will report the commissions revenues and its balance sheet will report the commissions receivable.
Accounting for Commissions Expense
Under the accrual basis of accounting, the commissions do not have to be paid in order for the company to report commissions expense. If a company owes for commissions on recent sales, but has not yet paid or recorded them, an accrual adjusting entry is made so they are included in the commissions expense reported on its income statement and are also reported as commissions payable (or included in accrued liabilities) on its balance sheet.
