Accounting For Revenue Share Agreements

Separate edition: sales commissions. Regardless of how you consider these things, your comp plan should consider the proper treatment. Z.B.; Do not halve commissions because accounting treatment has changed. It wouldn`t make your sales team happy. Also, don`t double it for similar reasons. Change the sales plan to account for the (potential) difference between the business logic (the amount of net sales generated by the sales activity, whether for sales or gears) and the supreme reporting decision. Revenue sharing takes many different forms, although each iteration involves the distribution of profits or operating losses among associated financial players. Sometimes revenue participation is used as an incentive program – a small entrepreneur can, for example, pay a percentage reward to partners or associates for pursuing new customers. At other times, revenue sharing is used to distribute profits from a business alliance. My bias comes from: what does a third party care about when they look at your top line? You take care of your percentage of the market. You take care of how many customers compensate yours for widgets. In this case, the counter-returns would hide that and make your business less transparent.

In general, I like counter-income for things that affect the net amount that the customer transfers to you (returns, rebates and allowances). Revenue sharing can also be done within a single organization. Profits and operating losses can be distributed to stakeholders and general or business partners. As with revenue-sharing models that involve more than one company, the interior of these plans generally requires contractual agreements between all parties involved. Private companies are not the only ones using revenue-sharing models; Both the U.S. government and the Canadian government have used the sharing of tax revenues between different levels of government. Starting in 2020, the NFL and the players` union agreed on a revenue split that would pay the team`s owners 53% of the revenue, while players would receive 47%, as reported by CBS Sports. In 2019, the NFL generated $16 billion in revenue, meaning just over $8.5 billion was paid to teams, with the remainder going to players. The practical details for each type of revenue participation plan are different, but their conceptual purpose is consistent in using the benefits to enable separate players to develop efficiencies or develop mutually beneficial innovations. It has become a popular tool within corporate governance to encourage partnerships, increase sales or share costs. Auditors reserve book entries in accordance with legally binding agreements and contracts and, ultimately, the CEO is responsible for these contracts and agreements.

First, I would be cautious about interpreting the nature of a revenue allocation agreement. Make sure that it is understood by all parties involved that your company shares 50% of the sale price, net of the costs originally paid. As a general rule, a 50/50 profit-splitting agreement means that the profit made, i.e. 40 – 5 – 35, is divided between the two parties. No matter how you distribute your income, the payment to the creditor must be debited from sales and credited to the lender`s account. I would open a separate credit commission account to avoid unnecessary complications when coordinating accounts with this lender. Not booking this essential payment with sales would distort your company`s financial results and make any proportional analysis meaningless. In the worst case scenario, you may even be accused of deliberately overstating your company`s turnover to mislead some creditors. The same is true of whether this agreement affects commissions paid to the trade company.