This supporting function is used to record expected and actual costs in the general ledger for bonus/commission on a continuing basis.
Bonus and commission for sales covered by a bonus/commission agreement (b/c agreement) are reserved on a continuing basis in the general ledger during invoicing. In this way, accrued liability and calculated costs for bonus/commission can be checked in the general ledger. Any advances or final settlements to a recipient can be later adjusted with the actual bonus/commission received.
Reservations are also updated in the statistics and for each recipient the b/c agreements.
The document includes examples that describes account entries for reservations resulting from sales, advances and final commission settlements.
To use this supporting function, accounts must be entered for the following accounting types in ‘Accounting Rule. Set’ (CRS395) for accounting event OI20 (Invoicing customer orders):
If the b/c agreement is processed in a foreign currency, the following accounting types for currency differences must also be specified with these account numbers:
Other prerequisites for processing bonus/commission are described in document Bonus and Commission.
The process contains the following activities:
Sales Covered by a B/C Agreement
Invoiced customer orders that are paying, that is affect a b/c agreement’s paying amount, reserve bonus/commission.
The reservations are calculated on the paying amount using a fixed percentage specified per recipient. See ‘Bonus/Comm Agreement. Enter Reservations’ (OIS414). This program is accessed by specifying option 13 = Reservation % in ‘Bonus/Comm Agreement. Open’ (OIS412).
The reservation for the expected bonus/commission is recorded as an accrued liability in the balance sheet in the accounts specified for accounting types 183 and 184. At the same time, the accounts specified for accounting types 181 and 182 are offset in the income statement.
Advances and Settlements
The amount(s) actually credited or settled for a recipient are compared to the amount(s) reserved. The difference is then adjusted in the income statement, giving the actual bonus/commission cost.
The amount reserved as accrued liability is adjusted so the balance becomes zero. This amount is recorded in receivables (according to accounting type 100). The advance is recorded in receivables as either a debt or a claim.
If sales leading to a reservation were made without having reached the lowest limit for the generating value, the settlement is invoiced as a zero amount. The reservations made per recipient and b/c agreement are also adjusted to zero in the balance sheet and income statement.
If the b/c agreement is processed in a foreign currency, currency adjustments are made for any exchange rate differences between the sales, advances and settlements.
A customer has invoiced $7,000 for items affecting the b/c agreement’s paying amount. The percentage used to reserve the commission for the recipient is 3% according to the agreement. The amount recorded as an accrued liability in the balance sheet and which affects the income statement is $210 ($7,000 * 3%).
The balance account for commission now shows an accrued liability of $210. The income account reflects the same amount as an expected cost.
The recipient’s accrued paying amount from the b/c agreement is $7,000 at the time the advance is calculated. A fixed advance of 4% is specified in the b/c agreement. The commission credited in advance is $280 ($7,000 * 4%). The advance is paid out according to the ordinary payment routine in accounts receivable for the recipient and b/c agreement. This means that the commission accounts should be adjusted with a $70 difference ($280 - 210).
The balance of the accruals account in the balance sheet will be zero after being debited with $280 ($210 previous credit plus $70 credit). The $280 advance is recorded in accounts receivable (accounting type 100). The balance of the commission account in the income statement shows the actual amount of $280 ($210 previous debit plus $70 advance debit).
When the commission agreement is settled, the generating value is $8,500. This gives 5.5% according to the table for bonus/commission percentages (see ‘Bonus/Comm Agreement. Enter Rates’ (OIS413)). The paying amount is $7,000 and is used as the basis for calculating the commission.
The final commission is $385 ($7,000 * 5.5%). $280 was previously credited in advance. Therefore, the recipient gets a credit note for $105 ($385 - 280).
In this case, there are no unused reservations. In other words, no sales have been made which affect the recipient’s b/c agreement between the last advance and this settlement.
The results of this example can be reviewed in the general ledger:
This example shows how reservations and exchange rate differences are recorded if the b/c agreement is in a foreign currency. Otherwise, the same rules apply as described in example 1.
Assume sales are made in the local currency, SEK, and affect a b/c agreement created in GBP. The exchange rate during invoicing is 11.25.
The b/c agreement’s paying amount is SEK 7,000 according to the order lines’ net amount. Converted to the currency of the b/c agreement, this is GBP 622.22 (7,000 / 11.25).
As stated in the b/c agreement, sales affecting the recipient should reserve 3% of the net amount. This means that GBP 18.66 is reserved for commission and converted into SEK 209.93 (18.66 * 11.25).
Advances and Settlements
Advances and settlements use the same method for reservations. The example below shows an advance with exchange rate differences between previous reservations and the current advance.
An advance of GBP 19.00 is credited to the recipient. When the advance is calculated, the exchange rate is 12.00, or SEK 228.00.
Previously, GBP 18.66 and SEK 209.93 were reserved. The difference between the reserved amount of GBP 18.66 and the actual credited advance of GBP 19.00 is GBP 0.34. This is therefore a difference of SEK 4.08 (0.34 * 12.00).
The exchange rate difference is therefore SEK 13.99 (228.00 - 209.93 - 4.08).
This procedure results in the following: