# Commission accounting under ASC 340-40

Canonical: https://finbryn.com/us/services/month-end-close-reporting/commission-accounting-asc-340-40

Finbryn prepares commission accounting under ASC 340-40 for SaaS and other contract-based companies that pay sales commissions: a contract-by-contract capitalization and amortization schedule, monthly journal entries and an impairment check, posted in QuickBooks Online, NetSuite or Sage Intacct and tied to the ledger every close.

A salesperson closes a three-year contract in March and earns a commission. If the company expenses that commission in March, the month looks worse than it was and the next thirty-five months look better than they were. ASC 340-40 exists to fix that mismatch. Costs that are incremental to obtaining a contract, and that the company expects to recover, go on the balance sheet as an asset and move to expense over the period the customer benefits from what was sold.

The standard has been in effect for private companies since fiscal years beginning after December 15, 2018, or a year later for companies that used the ASU 2020-05 deferral, and it still trips up businesses that grew into it later. The usual story is a company that has been expensing every commission as paid, gets its first audit, a bank diligence request or a term sheet, and is asked for the capitalized contract cost balance it never kept. The fix is a schedule, built from the commission plan and the contracts, that shows each commission as its own asset with a start date, a life and a running balance.

The judgment calls are the part worth getting right. Which commission plans create incremental costs and which are really bonuses tied to quota? Is the amortization period the initial term, or does it include expected renewals because the renewal commission is not commensurate with the first? Does the one-year practical expedient apply? We draft each of those decisions into a short policy memo, with the contract data behind it, and the company and its auditor adopt or change them. This sits next to [revenue recognition under ASC 606](/services/month-end-close-reporting/revenue-recognition-asc-606-ifrs-15) and the [deferred revenue schedule](/services/month-end-close-reporting/deferred-revenue), because the commission asset usually amortizes alongside the revenue it helped win.

What you get: Capitalization memo draft showing which commission plans create incremental costs of obtaining a contract; Amortization schedule by contract with renewal and term assumptions written down; Monthly journal entries for capitalized commissions and amortization; True-ups for clawbacks, cancellations and plan changes; Impairment check workpaper each reporting period; Rollforward and disclosure support for your auditor or reviewing accountant

Software we work in: QuickBooks Online, NetSuite, Sage Intacct, Salesforce, HubSpot, Excel, Google Sheets

## What is included

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.

## How the process works

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.

## Who this is for

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.

## Common problems we fix

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.

## Software and integrations

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.

## What it costs

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](/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.

## How we measure quality

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.

## Timeline and onboarding

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](/services/bookkeeping/catch-up-cleanup-bookkeeping) so the commission asset sits on reconciled numbers. The accounting policy stays yours. We prepare it, and you and your auditor decide.

## The process

1. **Plan and contract intake**: We collect commission plans, commission statements and a contract list with terms, start dates and renewal terms.

2. **Classification**: Each commission is classified as incremental to obtaining a contract or not, and the one-year practical expedient is documented if elected.

3. **Period selection**: An amortization period is set per contract, with renewals considered only where the policy memo supports it.

4. **Schedule build**: One row per commissioned contract, with amount, start date, life, monthly amortization and balance.

5. **Monthly posting**: New commissions are added, amortization is booked and the balance is reconciled to the general ledger at each close.

6. **True-ups and impairment**: Clawbacks, cancellations and plan changes are applied to the specific row, and an impairment check is documented each period.

## Common problems we fix

| The problem | How we fix it |
| --- | --- |
| Capitalized commission balance that only grows | We rebuild the schedule contract by contract and start amortization from each commission's own start date. |
| One amortization period used for every contract | We set the period from each contract's term and document any renewal assumption in the policy memo. |
| Clawbacks and cancellations never reach the asset | We apply each one to the specific contract row in the month it is confirmed, with a written reason. |
| No impairment check | We run and document the ASC 340-40 test at each reporting date, with extra attention after churn spikes. |
| Commissions expensed as paid, with an audit coming | We rebuild prior periods in a separate tab so the cumulative adjustment is visible and traceable. |

Pricing: Commission accounting is included in monthly reporting scope usually, because the effort follows the number of commissioned contracts added each month. Current tiers are published at [/us/pricing](/us/pricing); larger books and multi-year catch-ups are scoped separately. ([See pricing](https://finbryn.com/us/pricing))

## Glossary

- **Incremental cost of obtaining a contract**: A cost the company would not have incurred if the contract had not been obtained, such as a sales commission paid on signing.

- **Practical expedient**: A permitted shortcut. Here, expensing contract acquisition costs as incurred when the amortization period would be one year or less.

- **Commensurate commission**: A renewal commission in line with the initial one. If it is not, the initial commission may relate to expected renewals and be amortized over a longer period.

- **Clawback**: A commission repaid or reversed when a customer cancels or fails to pay within a set period.

- **Capitalized contract cost**: The balance sheet asset that holds qualifying commissions until they are amortized to expense.

## Frequently asked questions: Commission accounting under ASC 340-40

**Q: Which sales commissions must be capitalized under ASC 340-40?**

A: Commissions that are incremental to obtaining a contract and expected to be recovered. A commission paid only because a contract was signed qualifies. Quota bonuses that depend on other results usually do not. The standard has applied to private companies since fiscal years beginning after December 15, 2018, or a year later for companies that used the ASU 2020-05 deferral.

**Q: Can we just expense commissions if our contracts are annual?**

A: Often yes. ASC 340-40 allows a company to expense the cost when the amortization period would be one year or less. We document the election in a short policy memo, and your auditor confirms it fits your contract terms.

**Q: How long do we amortize a commission?**

A: Over the period the customer benefits from the goods or services the commission relates to. That can be longer than the first contract term if renewals are expected and the renewal commission is not commensurate with the initial one.

**Q: What happens when a customer cancels early?**

A: The remaining asset for that contract is reviewed. Amortization is accelerated or the balance is written off, and any clawback received is applied to the same row, with the reason recorded in the schedule.

**Q: Do you decide our accounting policy?**

A: We draft the policy memo and the schedule from your plans and contracts. The company adopts the policy and its auditor or reviewing accountant accepts it. Checked against the FASB codification on 2026-10-09.

**Q: Does this connect to our revenue recognition work?**

A: Yes. The commission asset usually amortizes over the same customer relationship as the revenue, so we align the two schedules. See [revenue recognition under ASC 606](/services/month-end-close-reporting/revenue-recognition-asc-606-ifrs-15).

**Q: Which commissions get capitalized under ASC 340-40?**

A: Costs that would not have been incurred if the contract had not been obtained, such as a commission paid on signing, are capitalized if the company expects to recover them. Pay that depends on something other than winning the contract usually is not. Your policy and your auditor make the final call.

**Q: What is the one-year practical expedient?**

A: ASC 340-40 lets a company expense the cost of obtaining a contract when the amortization period would be one year or less. Many subscription businesses with annual terms use it, and we document the election in the policy memo.

**Q: Do you decide the accounting policy for us?**

A: We draft the schedule and the policy memo from your commission plans and contracts. The company adopts the policy, and its auditor or reviewing accountant accepts or challenges it.

**Q: How is this priced?**

A: It sits inside month-end reporting scope and scales with the number of commissioned contracts. Current tiers are on the pricing page.

Related services:
- [Capitalized software development costs under ASC 350-40 and ASU 2025-06](https://finbryn.com/us/services/technical-accounting-advisory/capitalized-software-asc-350-40)
- [Revenue recognition (ASC 606 / IFRS 15)](https://finbryn.com/us/services/month-end-close-reporting/revenue-recognition-asc-606-ifrs-15)
- [Deferred revenue](https://finbryn.com/us/services/month-end-close-reporting/deferred-revenue)
- [Prepaid schedules](https://finbryn.com/us/services/month-end-close-reporting/prepaid-schedules)
- [Accruals](https://finbryn.com/us/services/month-end-close-reporting/accruals)

Industries:
- [SaaS](https://finbryn.com/us/industries/saas)
- [Startups and VC-backed companies](https://finbryn.com/us/industries/startups-vc-backed)
- [Professional services](https://finbryn.com/us/industries/professional-services)

Related guides:
- [Revenue Recognition Under ASC 606 for SaaS Companies](https://finbryn.com/us/guides/revenue-recognition-asc-606-saas)
- [SaaS Metrics Every Finance Team Should Track](https://finbryn.com/us/guides/saas-metrics-for-finance)

## Sources

1. [FASB Accounting Standards Codification Subtopic 340-40, Other Assets and Deferred Costs: Contracts with Customers](https://asc.fasb.org/340) (2014-05-28)
2. [FASB Accounting Standards Codification Topic 606, Revenue from Contracts with Customers](https://asc.fasb.org/606/) (2014-05-28)
3. [FASB, Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606)](https://storage.fasb.org/ASU%202014-09.pdf) (2014-05-28)

Reviewed October 2026

[All services in Month-end close and reporting](https://finbryn.com/us/services/month-end-close-reporting)

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