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Classification of Commissions/Royalties Paid to Resellers

Do folks charge these to SG&A much like commissions paid to sales employees or should it go to COGS. I lean toward SG&A, however, I've been questioned on this. Thanks.

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

This text covers it nicely.From http://www.investopedia.com/terms/c/cogs.asp

DEFINITION OF 'COST OF GOODS SOLD - COGS'
The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales."

A Reseller is involved in selling, not making, what you sell. QED.
Although I think they may err with the use of direct and indirect. Direct Sales and Distribution costs do exist, such as reseller's commission on products sold.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

I have never seen it outside of selling expense. A royalty to produce a product would go into COGs. For example, there are a couple of manufacturing processes in which we pay royalties for a process, so we put this in COGS. For brokers' commissions and royalties and other payments to organizations selling our product, these are always in Selling Expense.

Jill Nickerson
Title: CFO
Company: In Transition
(CFO, In Transition) |

If you were to provide the reseller a discount on the price of the goods, it would reduce revenue, which would affect COGS as a percentage of revenue. However, I've always seen commissions booked to selling expense.

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