Course Outline
Join PRO

Does sales commission get reported in the income statement?

Author:
Harold Averkamp, CPA, MBA

Definition of Sales Commissions

Sales commissions are amounts earned by selling another company’s goods or services and paid by the company whose goods or services were sold. The amounts earned/paid are often based on dollars of sales or number of units sold.

The company responsible for paying the sales commissions will report a selling expense. It will also report a liability for any unpaid commissions. The company or person that did the selling will report revenues or income for the amount earned. It will also report a receivable for any commissions earned but not yet received.

Examples of Sales Commission

Under the accrual basis of accounting (as opposed to the cash basis) the parties involved should record the sales commissions as follows:

  • The company responsible for paying the sales commission should debit Sales Commission Expense and credit a liability account in the accounting period when the sales occur. When the commission payment is made, the liability account is debited and the Cash account is credited. If the sales are related to the company’s main activities, the commissions are reported on the company’s income statement as commission expense, or as part of the companies selling, general and administrative (SG&A) expenses. (Any commission expense that pertains to a peripheral activity of the company should be reported as other expense.)
  • The company receiving the commission should credit Commission Revenues and debit Commissions Receivable provided there is certainty that the commissions will be collected. The amount of Commission Revenues will be reported on the income statement as one of the company’s operating revenues. (If the commissions were not a main activity of the business, the commissions earned will be reported as part of other income.)
Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus