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Accounting for Sales Commission

**BACKGROUND**
We are an enterprise-SaaS startup; our Sales Contracts are typically multi-year agreements.

**ASSUME**

* Sales person closes a 3-year contract with Total Contract Value (TCV) = 300k
* Sales person commission is 10%

**QUESTIONS**

1) At the time the Sales Contract is closed, the business would expect to increase Sales Commission Liability by $30k (10% of $300k). Would it be correct to have 1/3 of this $30k in a Short-term Liability (since the commission will be accrued over the next 12 months), with the other 2/3 of the $30k commission in Longterm Liabilities?

2) For each month, would it be appropriate to expense 1/12 of the Current Liability, but then move the same $ amount out of Longterm Liability into Current Liability (to accurately track the next 12-month of Current Liabilities)?

Is there any simple way to help Budget this? I would imagine, with multiple contracts that this calculation would get very hectic.

NOTE: I am using Excel for our Budgeting process and will not be using a more advanced Budgeting software.

Answers

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

Anon
What accounting system are you using?
What have you gleaned from AC606?

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