Commission-received journal entry is used when a business earns money by helping others sell goods or services. This income must be recorded properly in the books of accounts to keep records correct. The correct journal entry is:
| Cash/Bank A/c Dr. To Commission Received A/c. |
This shows cash coming in and income earned. Whether the commission is received in cash, through a bank, or is still receivable, it must be recorded accurately. This article will explain how to pass the commission-received journal entry, its accounting treatment, GST impact, and how it is shown in final accounts and the Tally.
What is Commission?
The commission is the money a person or business earns to help someone sell goods or services. It is a type of income. People often earn commissions when they act as agents, brokers, or salespeople. In simple words, commission is a fee for helping to complete a deal. It is usually a percentage of the sale value.
For example, if a person sells a product for ₹1,00,000 and earns a 5% commission, they get ₹5,000 as a reward for making the sale..
What is Journal Entry for Commission Received?
Commission income is a common form of earning in many businesses. When a company sells goods on behalf of another, it earns a part of the sales value as a commission. We call this earning commission received. In accounting, we must record this income properly to keep the books correct. This section will explain what the journal entry for commission received is and how we record it.
When a business receives a commission, it must show this as income. The double entry involves increasing the cash or bank account and increasing the commission income account. In simple words, money comes in, so cash or bank goes up. At the same time, commission income also goes up because it is earned.
Journal Entry for Commission Received
The Journal Entry for Commission Received records income earned from providing services or facilitating transactions. It reflects an increase in both income and cash or bank balance, depending on how the commission is received. Accurately recording this ensures proper income reporting and helps maintain transparent financial records. The standard format for the commission received double entry is:
| Cash/Bank A/c Dr.To Commission Received A/c |
Here:
- The Cash/Bank A/c increases because the business has money.
- The Commission Received A/c shows the income earned.
This is how we pass the commission income journal entry.
Journal Entry for Commission Due
The Journal Entry for Commission Due is recorded when commission income is earned but not yet received. It reflects an increase in income and a receivable, showing the amount owed by the client or party. Now, if the commission has not yet been received but is due, we will pass a different entry.
| Accrued Commission A/c Dr.To Commission Received A/c |
Later, when the business gets the cash, we pass:
Cash/Bank A/c Dr.To Accrued Commission A/c |
When to Pass This Entry?
The commission received entry should be passed when the business earns commission income, either through direct payment or confirmation of the amount receivable. This typically occurs when a service is completed, or a sale is facilitated, and the commission becomes due. Whether the payment is made immediately or is pending, recording the entry ensures the income is recognized in the correct accounting period, maintaining accurate and timely financial records. You pass the commission received entry when:
- The commission is received immediately after the sale.
- The commission is due but not yet received.
- You receive an advance commission.
You must pass the journal entry for the received commission based on when the money is received or earned. In Tally, you select Indirect Income as the ledger group and pass the commission entry using voucher mode.
Accounting Treatment of Commission Received in Books of Accounts
The accounting treatment of commission received involves recognizing it as income in the books of accounts when it is earned, regardless of when the payment is received. It is treated as a revenue item and is recorded by crediting the Commission Income Account and debiting either the Cash/Bank Account (if received) or Accounts Receivable (if due). This ensures the financial statements accurately reflect all income earned during the accounting period, supporting proper financial analysis and reporting.
How to Show Commission in Accounts?
You record commission under the Indirect Income head in the Profit & Loss account. It is not direct income from sales but is still part of regular earnings. The commission received ledger must be created under Indirect Income. At the end of the year, all commission income is transferred to the P&L account. In final accounts, we show this on the credit side of the Profit and Loss Account. This is the right way of treating commission received in final accounts.
For example:
| Particulars | Amount (₹) |
| Commission Received | 15,000 |
This ₹15,000 is part of the total income.
GST on Commission Received
GST on Commission Received refers to the Goods and Services Tax applicable on income earned through commissions for services rendered or sales facilitated. Under GST law, commission income is considered a taxable supply of service, and businesses or individuals earning such income must charge and collect GST if they are registered and exceed the prescribed threshold. The applicable GST rate is usually 18%, and proper invoicing, collection, and reporting are essential to remain compliant. Recording commission with GST accurately ensures transparency in tax reporting and allows for claiming input tax credit where applicable.
If your business is registered under GST, and your commission exceeds the limit set by the government, you must charge GST. In that case, the entry is:
| Debtor A/c Dr.To Commission Received A/cTo Output GST A/c |
When you receive the payment:
| Bank A/c Dr.To Debtor A/c |
This is the commission received entry with GST. Always include GST when applicable to avoid fines.
Treatment in Final Accounts
The treatment of commission received in final accounts involves showing it as indirect income in the Profit and Loss Account, which increases the net profit. If any commission is still receivable at year-end, it is also shown as an asset under Accounts Receivable in the Balance Sheet.
You must post the income in two places:
- Credit side of the P&L account (as commission income)
- Balance Sheet, if the commission is receivable or received in advance
If you get an advance commission, it is a liability until earned. You record it like this:
| Bank A/c Dr.To Advance Commission A/c |
Later, when you earn it:
| Advance Commission A/c Dr.To Commission Received A/c |
Real Example of Accounting Treatment
Let’s take an example: Amit Traders received ₹10,000 as commission in June. They record:
Bank A/c Dr. ₹10,000
To Commission Received A/c ₹10,000
At year-end, they show ₹10,000 as income in the P&L account.
This correct treatment ensures your books are up-to-date and match the actual earnings.
Commission Received Journal Entry with Example
The Commission Received Journal Entry with Example helps illustrate how to record income earned through commission in the books of accounts. This entry reflects the increase in income and either a rise in cash/bank balance (if received) or receivables (if due). Understanding this journal entry with a practical example ensures clarity in recording and accurate representation in final accounts. Let’s now look at detailed examples with proper commission-received journal entries. We will take real-life business scenarios to explain this concept fully. This part also covers how to pass entries in Tally and explains the use of ledgers.
Case1: Commission Received in Cash
Commission Received in Cash refers to income earned from services or sales facilitation that is immediately collected in physical cash. This transaction needs to be recorded promptly to reflect both the increase in income and the rise in cash on hand. Accurate recording ensures proper tracking of earnings and helps maintain clear financial records.
Example 1: Ravi Enterprises received ₹5,000 commission in cash from Bharat Ltd.
Entry:
Cash A/c Dr. ₹5,000
To Commission Received A/c ₹5,000
This entry records income and cash received.
Case 2: Commission Receivable
Commission Receivable refers to commission income that has been earned but not yet received by the end of an accounting period. It is considered an accrued income and is recorded as an asset in the balance sheet. This ensures that the income is recognized in the correct period, following the accrual basis of accounting, even though the actual payment is pending.
If the commission is due but not yet received:
Commission Receivable A/c Dr. ₹5,000
To Commission Received A/c ₹5,000
When you receive it later:
Bank A/c Dr. ₹5,000
To Commission Receivable A/c ₹5,000
This is useful when commission is billed, but payment is delayed.
Case 3: Commission with GST
Commission with GST refers to commission income on which Goods and Services Tax is applicable, typically at a standard rate of 18%. When a business or individual earns commission and is registered under GST, they must charge GST on the amount received and issue a proper tax invoice. The transaction must be recorded to reflect both the income and the GST liability, ensuring accurate accounting and compliance with GST regulations.
If GST @18% is charged:
Commission = ₹10,000
GST = ₹1,800
Entry at the time of invoice:
Debtor A/c Dr. ₹11,800
To Commission Received A/c ₹10,000
To Output GST A/c ₹1,800
When payment is received:
Bank A/c Dr. ₹11,800
To Debtor A/c ₹11,800
This is the standard commission received entry with GST in India.
How to Pass Commission Entry in Tally?
To pass a commission entry in Tally, follow these simple steps depending on whether the commission is received or paid. Tally uses Voucher Entry Mode, and the transaction can be recorded using the Journal or Receipt Voucher based on the nature of the entry.
- Go to: Gateway of Tally → Accounting Vouchers → Press F6 (Receipt)
- Select Ledger: Choose Cash/Bank (if received) under By Account
- Under “To Account”, select Commission Income Account
- Enter amount
- If GST applicable:
- Enable GST in Company Features.
- Choose or create an Output GST ledger.
- Add the GST split (CGST/SGST or IGST) in the voucher.
Make sure the commission received ledger is grouped under Indirect Incomes.
Tally auto-posts the journal once the voucher is saved. This is how we manage the commission entry in Tally.
Journal Format of Commission Entry
The journal format of commission entry is used to record commission transactions accurately in the books of accounts, whether the commission is received or paid. This format follows the double-entry system, ensuring that both the income/expense and the corresponding cash, bank, or receivable/payable accounts are affected. The journal format typically includes the date, the accounts involved, debit and credit columns, and a brief narration explaining the nature of the transaction. It helps maintain organized financial records and supports accurate reporting in the final accounts. The format remains the same:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| xx/xx | Cash/Bank A/c Dr. | xxx | 10,000 | |
| To Commission Received A/c | xxx | 10,000 |
This is the simple commission-received journal format used in schools and exams.
Relevance to ACCA Syllabus
Commission income is part of financial reporting and revenue recognition. ACCA students learn how to treat such income under accrual accounting using IFRS. This journal entry also links to key ACCA topics like double-entry bookkeeping, preparation of financial statements, and the application of IFRS 15 (Revenue from Contracts with Customers).
Commission Received Journal Entry ACCA Questions
Q1: What is the correct journal entry when a business receives a commission in cash?
A) Commission A/c Dr. To Cash A/c
B) Cash A/c Dr. To Commission Received A/c
C) Commission Received A/c Dr. To Cash A/c
D) Bank A/c Dr. To Sales A/c
Ans: B) Cash A/c Dr. To Commission Received A/c
Q2: Which financial statement shows the commission received as part of income?
A) Balance Sheet
B) Statement of Changes in Equity
C) Income Statement
D) Trial Balance
Ans: C) Income Statement
Q3: Under accrual accounting, when is commission income recognized?
A) When cash is received
B) When an invoice is raised
C) When it is earned, regardless of cash receipt
D) When approved by a manager
Ans: C) When it is earned, regardless of cash receipt
Q4: Where is “commission received in advance” shown in the financial statements?
A) Under revenue in the income statement
B) As an asset in balance sheet
C) As a liability in balance sheet
D) Not shown in any financial statement
Ans: C) As a liability in balance sheet
Q5: Which IFRS standard governs revenue recognition, including commission income?
A) IFRS 13
B) IFRS 15
C) IFRS 16
D) IFRS 10
Ans: B) IFRS 15
Relevance to US CMA Syllabus
In the CMA curriculum, revenue recognition and proper journal entries are key parts of Part 1: Financial Planning, Performance, and Analytics. Understanding commission income helps in mastering income measurement, adjusting journal entries, and preparation of internal financial reports.
Commission Received Journal Entry CMA Questions
Q1: Which section of the income statement does the commission received appear in?
A) Cost of Goods Sold
B) Revenue or Other Income
C) Administrative Expense
D) Investment Income
Ans: B) Revenue or Other Income
Q2: If commission is earned but not yet received, what is the correct journal entry?
A) Cash A/c Dr. To Commission Received A/c
B) Commission Receivable A/c Dr. To Commission Income A/c
C) Commission Income A/c Dr. To Accounts Payable
D) Bank A/c Dr. To Commission Receivable A/c
Ans: B) Commission Receivable A/c Dr. To Commission Income A/c
Q3: What accounting principle requires recognizing commission when earned?
A) Matching Principle
B) Revenue Recognition Principle
C) Conservatism Principle
D) Historical Cost Principle
Ans: B) Revenue Recognition Principle
Q4: In management accounting, commission income impacts:
A) Fixed costs
B) Break-even analysis only
C) Profit analysis and budget forecasting
D) Only cost center performance
Ans: C) Profit analysis and budget forecasting
Q5: Which type of account is “commission received”?
A) Expense
B) Liability
C) Income
D) Asset
Ans: C) Income
Relevance to US CPA Syllabus
In the CPA exam, this topic falls under FAR (Financial Accounting and Reporting). Knowing how to record commission income under US GAAP and using proper journal entries and disclosures are crucial for accurate financial statement preparation and compliance.
Commission Received Journal Entry CPA Questions
Q1: How is the commission received classified in GAAP-based financials?
A) Other Comprehensive Income
B) Revenue or Operating Income
C) Financing Cash Flow
D) Extraordinary Gain
Ans: B) Revenue or Operating Income
Q2: If the commission is earned in December but received in January, what entry is passed in December?
A) No entry
B) Commission Income A/c Dr. To Accounts Receivable A/c
C) Accounts Receivable A/c Dr. To Commission Income A/c
D) Cash A/c Dr. To Deferred Income
Ans: C) Accounts Receivable A/c Dr. To Commission Income A/c
Q3: Under accrual accounting in GAAP, when is commission income recorded?
A) When cash is received
B) When the performance obligation is satisfied
C) When the contract is signed
D) When reported to the IRS
Ans: B) When the performance obligation is satisfied
Q4: What journal entry records did the commission receive in advance?
A) Cash A/c Dr. To Deferred Revenue A/c
B) Deferred Revenue A/c Dr. To Cash A/c
C) Commission Income A/c Dr. To Cash A/c
D) Commission Income A/c Dr. To Bank A/c
Ans: A) Cash A/c Dr. To Deferred Revenue A/c
Q5: Which FASB ASC Topic relates to revenue recognition like a commission?
A) ASC 840
B) ASC 606
C) ASC 718
D) ASC 320
Ans: B) ASC 606
Relevance to CFA Syllabus
For CFA Level I, understanding commission income is part of Financial Reporting and Analysis. Knowing how to record and interpret such entries is crucial when analyzing revenue and profitability, especially when comparing across industries or companies.
Commission Received Journal Entry CFA Questions
Q1: How do analysts treat commissions received when reviewing income statements?
A) As an asset
B) As part of operating income
C) As part of financing income
D) Not reported
Ans: B) As part of the operating income
Q2: Which concept allows recognizing commission before cash is received?
A) Going Concern
B) Accrual Accounting
C) Materiality
D) Consistency
Ans: B) Accrual Accounting
Q3: If the commission is recognized before cash is received, what account is affected?
A) Cash
B) Deferred Commission
C) Commission Receivable
D) Unearned Income
Ans: C) Commission Receivable
Q4: A company earns ₹50,000 commission in Q1 but receives it in Q2. Where is it recorded in Q1?
A) Cash Flow Statement
B) Balance Sheet under liabilities
C) Income Statement and Receivable in Balance Sheet
D) Statement of Changes in Equity
Ans: C) Income Statement and Receivable in Balance Sheet
Q5: Which type of account is commission received in financial analysis?
A) Current Liability
B) Non-current Asset
C) Revenue Account
D) Equity Account
Ans: C) Revenue Account
