What type of account is "Deferred Commission"?

Question

I'm studying for an exam to become a Certified Bookkeeper and this question stumped me. The choices are asset, expense, liability or revenue.

Shouldn't the account name end with "Revenue" or "Expense"? I think then I'd know the answer.

Answer 1

In the absence of context or clues, my advice is to say it is a current liability. It's a liability if it's a deferred commission revenue and it's a liabililty if it's a deferred commission expense. The difference is that it it's a deferred comm. rev., you reverse it to revenue when the commission is earned and if it's deferred comm. exp. you reduce it by paying it off so your entry in future would be a cash entry. It's probably commission expense that you owe your sales agents who've gotten sales for you but perhaps due to certain conditions not met yet, you haven't paid out the commission but you'd have to in future. But that's all for the future. For now, the answer must be a liability.

Answer 2

Deferred Commissions

Answer 3

Think it through. If you initially record a liability, which is a credit, then when you later amortize the commission to match against the deferred revenue as it's earned, what will you debit and credit? If you initially record a liability, then will you debit this liability every month to ratably expense it? and if so, you will need to credit the liability, or in other words, make this liability grow???

You pay the commission up front, and like any other prepaid expense, it's an asset to later be expensed at the proper time.

Don't confuse with Deferred Revenue, where the customer pays you first, and you book a liability because you later will need to provide services, at which time you'll recognize the revenue with a credit, and reduce the liability by the same amount.

Answer 4

It would only become a Deferred Commission Revenue if the company is engaged in a marketing or brokerage business. Then it would be classified as an asset.

If the nature of the business is not given, generally it should be Deferred Commission Expense, which is usually the case.
And this is classified as a liability.

Answer 5

This Site Might Help You.

RE:
What type of account is "Deferred Commission"?
I'm studying for an exam to become a Certified Bookkeeper and this question stumped me. The choices are asset, expense, liability or revenue.

Shouldn't the account name end with "Revenue" or "Expense"? I think then I'd know the answer.

Answer 6

Yea I'm so vain I even thought this question was about me