Commission accounting under ASC 340-40

The core deliverable is a schedule with one row per commissioned contract. Each row carries the contract, the salesperson and the commission amount, the date the cost was incurred and the amortization period used. It also holds the monthly amortization, the running asset balance and any impairment recorded. A summary tab rolls the schedule up by month so the journal entry is a single posting you can trace to the detail.

Around the schedule sits a policy memo draft. It records which commission plans were analyzed, which were treated as incremental costs of obtaining a contract, whether the one-year practical expedient is elected, and how renewals and expected customer life were handled. When a plan changes, a clawback is triggered or a customer cancels early, the schedule is adjusted in the month it happens and the reason is written next to the entry. Each period ends with a rollforward showing the opening balance, additions, amortization, impairment and closing balance, which is the shape most auditors ask for when they test the account.

We start with the commission plan documents, the commission statements for the periods being built, and a contract list from your CRM or billing system with term, start date and renewal terms. Plans are classified first: commissions that are only payable on winning a contract are treated differently from quota bonuses, manager overrides and accelerators that depend on other results. Then each qualifying commission gets an amortization period, which is the term the customer benefits from, extended for anticipated renewals only when the renewal commission is not commensurate with the initial one.

Once the schedule exists, the monthly work is small. New commissions are added from the commission statement, amortization is posted, cancellations and clawbacks are applied to the specific contract row, and the closing balance is reconciled to the general ledger before the period is marked final. For catch-up work, we rebuild prior periods in a separate tab so the cumulative adjustment is visible and your auditor can see how it was derived.

This fits companies that pay commissions on multi-period contracts: software and subscription businesses, managed service providers, agencies with annual retainers, and equipment sellers with service contracts. It matters most when a lender, investor or acquirer is about to look at the balance sheet, or when the first audit is coming and the company has been expensing commissions as paid. It is also useful for companies that already capitalize commissions in a spreadsheet nobody owns anymore, where the balance cannot be explained.

If your contracts all run a year or less, the practical expedient may let you expense commissions as incurred, and the work is a short memo rather than a schedule. If you pay no sales commissions at all, you do not need this scope.

The first is a capitalized commission balance that has not been amortized since it was set up, so the asset only grows. The second is every commission amortized over the same arbitrary period, three years for everything, whatever the actual contract terms are. The third is clawbacks and cancellations that never reach the schedule, which leaves an asset behind for a customer who is gone. The fourth is no impairment check at all. ASC 340-40 requires an impairment loss to the extent the carrying amount exceeds the remaining consideration expected to be received, less the costs directly related to providing those goods or services that have not yet been expensed, and a churn spike is exactly when that matters. The fifth is renewal commissions that were never evaluated, so the policy question of whether the initial commission relates to the renewal period was never answered, in writing or at all.

The schedule lives where your team can see it. For smaller contract volumes that is a locked workbook in Google Sheets or Excel with a monthly journal entry posted to QuickBooks Online. For larger books it can sit in NetSuite or Sage Intacct, which have native amortization schedules for prepaid and capitalized costs. Commission data comes from the statements your sales operations team or commission tool produces, and contract data from Salesforce, HubSpot or your billing system. We reconcile all of it to the general ledger rather than trusting any single system's report, and we document the export used each month so the schedule can be rebuilt by someone else.

Commission accounting usually sits within monthly reporting scope, because the effort tracks the number of commissioned contracts you add each month rather than a flat fee. Current tiers are published at /us/pricing. Whether it fits a published tier depends on how many contracts you add each month, and we confirm that in writing. A larger book, multiple entities or a catch-up across several prior years is scoped separately once we have seen the commission plans and the contract list. The scope and price are confirmed in writing before work starts.

Every schedule is checked internally before it reaches you. The check confirms that the closing balance ties to the general ledger to the cent, that every commission on the statement appears on the schedule or is documented as expensed, that amortization periods match the contract terms, and that each clawback or cancellation carries a written reason. The bar is whether your auditor can open the file, pick a commission at random and trace it from statement to contract to amortization without asking us a question.

A first schedule for a company with a few dozen commissioned contracts usually takes one to two weeks once we have the plan documents, the commission statements and the contract list. A multi-year catch-up takes longer, and we agree the timeline when we scope it. If your books are behind, we begin with a catch-up so the commission asset sits on reconciled numbers. The accounting policy stays yours. We prepare it, and you and your auditor decide.