Commission to Agents Based on Profit not Sales

Commission to Agents is a common word in Accountany and Finance. Today we will discuss about Commission to Agents

Problem –The business owner has to allocate profits to his agents on the basis of profits.

For instance – sales to a particular client through an executive –(minus) purchases made for that specific order gives the profit

Profit=SALES – PURCHASE

* for that particular client through that particular Agent

Now this profit is to be distributed between the owner of PP and the sales agent in some ratio percentage.

For example – profit gained = sales to a client ( 1000) – Purchase from a party (900)=100

5% of 100 to be given to the agent ( ABC) and 95 remains as profit

Let us take the scenario:

Where sales is being made to a person who is buying space for advertisement from the newspaper company at Rs. 3500.

The name of this party is “Debtor 3 – Buyer of Telegraph”

Here we are making a sales to him as :-

A sale of 3500 is being made to the buyer and a commission would be given to the buyer based on the profit earned. That is not on the sales value but on the actual profit earned.

When the business owner buys space from Telegraph he also buys at a cost and sells at a higher cost ( in this example 3500)

Now let us make the purchase and we will use the same agent class – class-sales-Ramesh 5

%

Sales of 3500 – Purchase of 2500

*Therefore profit of 1000 and 5% of 1000 has to be given to the agent that is Rs. 50.

The report shows that total sales for Rs. 3500 has been made through this agent and purchases worth rs. 2500 has been done through him. It also shows that total profit earned through the agent Ramesh is 1000

Now out of this 1000 Rs. 50 has to be given to the agent for the coming and the remaining 950 would be the business owner’s share.

Now till date no payment has been made to the agent. Let us make a payment to the agent of Rs. 50

This is shown in the report above against the name Ramesh Exec (Closing balance as Rs. 50)

Since the payment is being made to Ramesh we have tagged only the Ramesh Exec.

The Expense ledger “Commission Given” would also give me the report of how much money has been made to the agents in total( including other agents as well).

We have used Maintain bill-wise for Ramesh Agent –commission this would give a report of outstanding as payables

And show Ramesh Agent’s due as Rs. 50

Giving us a perfect report and also the outstanding for Ramesh Agent as Rs. 50

We can see the report for this agent – Ramesh by going to the cost centre

Display statement of accounts and then Cost centres

Select Ramesh Exec

This report clearly shows us that we need to pay Rs. 50 to Ramesh (the closing balance)

Now there is a solution where I don’t need to make two entries one journal and a separate payment entry.

In this method we can simply use a journal as

But note that in this case we have will have to enable the cost centres against cash payments for agents ( cash – in – hand) and not against Ramesh Agent-commission

We can get the same report as in the previous case. The report would be shown as :-