In short
When another party is involved in providing goods or services to a customer, a company is a principal (reporting revenue gross) if it controls them before transfer, and an agent (reporting only its fee or commission, net) if it doesn't.
Key takeaways
- Indicators of control include primary responsibility for fulfilment, inventory risk and discretion over price.
- Online marketplaces selling others' goods are often agents.
- The choice changes reported revenue but not gross profit.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
An online marketplace arranges sales between independent sellers and buyers. It never takes control of the goods, does not set prices, and bears no inventory risk. How should it report revenue?