Sales commissions - accounting treatment

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Hi all,
As far as I know there are two ways to account for sales commissions on contracts. One way is to expense commissions once they arise, i.e. paid to distributors. Another way is to capitalise them in BS as prepaid expenses, i.e. advances to distributors, and hold them till an underlying contract is fulfilled (100% paid and delivered). Only after that commissions are debited to PL. Is there any formal guidance in IFRS or US GAAP for us to follow or rely upon in our selecting and applying accounting methods? How do (or would) you treat commissions?
 
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What document or legal event triggers posting of a prepaid commission as an expense if say the contract is cancelled or if products are not delivered even after 100% paid up?
 

bklynboy

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What industry are you in? GAAP requires that sales expenses be aligned to how the revenue is being recorded so that their is a proper matching of costs to revenue. Some industries have some very specialized rules in this area (such as Insurance) but the above is the general answer. If sale is cancelled you would typically get a refund from the sales contractor and if its not recoverable then expense immediately.
 

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