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Acccounting treatment for sole distributor of company product?

Disha sultana's Profile

Accounting For Revenue SharingOur company make some software module in Bangladesh. And it has a sole distributor who sells in another country. After selling, distributor give 60% of the sales end of the month and he keep 40%, it was the agreement. In every month we know who are the customers and in which date product are sold. But we receive money from distributor. So how can i treat account receivables & distributor in company account?

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Disha,

It depends on how you want to track it.

1) You could track it as 100% of the sale to the end customer, and then a counter revenue booking of the 40% to the distributor, giving a net revenue (and Net AR) of the 60%. Since you are only receiving the 60%, that seems neater and easier to track, and just tag the customers on each item owed by the disti to you.

CR: Revenue 100%
DR: Contra Rev 40%
DR: AR 60%

2) The other, longer, way to handle it is you do both of the Revenue transactions, but send one into Disti AP, and one into Customer AR. Have a second Distributor AR account, that you offset the two items from D-AP and C-AR. So, at the end of the period D-AP and C-AR go to zero, and it is all in D-AR.

CR: Revenue 100%
DR: Contra Rev 40%
DR: C-AR 100%
CR: D-AP 40%
then
DR: D-AP 40%
CR: C-AR 100%
DR: D-AR 60%

You can also offset it *when paid*, which is when your risk goes away, if you want to be able to show customer-specific risk, but I'd rather handle it like #2

KP

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I would go the simplest route in recording the transaction. The distributor is a separate legal entity and should be treated as such. The 40% that the distributor takes should be a distribution expense for the company. I differ on the Contra Revenue account as it (the 40%) does not really represent the nature of a revenue contra account like Sales Returns or allowances or discounts.

CR Sales/Revenue 100%
DR Distribution Expense (or whatever expense you want to call it) 40%
DR AR 60%

I would however suggest that the distributor bills you or executes an invoice for the 40% along with whatever report they furnish you at the end of the month to keep the records/books clean, (Note: without the invoice, your distributor may be avoiding recognizing revenue thus avoiding taxes which I do not think you want to be a party to.).

DR A/R 100%
CR Sales/Revenue 100%

Receipt of payment
DR Cash 60%
DR Distribution Expense (or whatever expense you want to call it) 40%
CR AR 100%

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

It seem to me that the Company is selling the software to the Distributor, who in turn sells to the customer.

Whether the Company records and activates the license or not, the sale is made to the Distributor.

That being the case, an invoice the the Distributor for the 60% (which in reality is the Companies 100%) would be the easiest and cleanest.

Seperately, the Company could have a database of all end-user's, etc, unless there are direct sales to that end-user.

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