When a business firm receives any amount from any person in respect of any services rendered to help them for increasing the sale or helping in purchase of goods or relating to other business transaction, then this receipt will be treated as commission received.  Normally the amount of commission is mutually agreed by both the parties according to the contract made by them.

If the business firm is purely doing the marketing work for other firms or rendering their services on commission basis only, in that case the commission received will be a direct income, otherwise, the commission received will be an indirect income.

For Example M/s Supple Rubbers is having good links with suppliers of Refractories Items. Though, M/s Supple Rubber is not purchasing any item from them directly but if it helps other companies to get the material at reasonable cost then it will charge some  money from the purchaser or from the seller or from both. This amount received in such way shall be treated as ‘Commission Received’.

Accounting Treatment of Commission Received

a) In case of amount received in cash:-

Type of Voucher to be prepared:- Cash Receipt Voucher

Entry to be made

Debit:- Cash Account

Credit:- Commission Received Account

b) In case of amount received in cash:-

Type of Voucher to be prepared:- Bank Receipt Voucher

Entry to be made

Debit:- Bank Account

Credit:- Commission Received Account

c) In case of accrued commission:-

Type voucher to be prepared:- Journal Voucher

Entry to be made

Debit:- Customer’s Account

or

Commission Receivable Account

Credit:- Commission Received Account

Treatment of Commission Received in final accounts

The commission received will be shown in income side of profit and loss account since it is a revenue income.

Note:- Commission receivable account will be shown in assets side of balance sheet.

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