In my business we are awarded contracts from customers to fulfill a service, which we then subcontract to other organizations to carry out.
Currently, we've been recognizing the total paid to our subcontractors as our cost of revenue. Therefore, our income from our customers, less our payments to our subcontractors has been our gross operating profit.
However, there are direct costs associated with each of these jobs we incur as our sales team locates and retains subcontractors. They are also paid a commission for each job they source.
Would these costs, including their commissions be considered cost of revenue? We would not incur these costs without sourcing these jobs, but commissions are typically considered selling expenses.
Any insight would be appreciated.
Thanks,
Shawn
Currently, we've been recognizing the total paid to our subcontractors as our cost of revenue. Therefore, our income from our customers, less our payments to our subcontractors has been our gross operating profit.
However, there are direct costs associated with each of these jobs we incur as our sales team locates and retains subcontractors. They are also paid a commission for each job they source.
Would these costs, including their commissions be considered cost of revenue? We would not incur these costs without sourcing these jobs, but commissions are typically considered selling expenses.
Any insight would be appreciated.
Thanks,
Shawn