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Understand the US ASC 606 principal-versus-agent presentation decision. Reconcile gross transaction billings, supplier amounts and recognized revenue using an approved classification schedule and a worked example.
Gross vs net revenue recognition under US ASC 606 turns on whether the company controls the specified good or service before transferring it to the customer. A principal reports gross revenue; an agent recognizes the fee or commission for arranging another party's provision of that good or service.
When another party participates in delivery, first identify each specified distinct good or service, or distinct bundle, promised to the customer. Then assess whether the company controls it before transfer. These are the steps in ASC 606-10-55-36 and 55-36A, reproduced in the accounting guidance here.
The assessment does not necessarily apply to a whole customer, supplier or contract. A company can be principal for one specified service and agent for another within the same arrangement. Your reporting file must preserve that distinction rather than assigning one label to every transaction with a counterparty.
Control concerns the ability to direct use and obtain substantially all remaining benefits. The evidence may include responsibility for fulfillment, inventory risk and discretion in establishing price. Those indicators support the control assessment; they are not a checklist, and no simple count of favorable indicators determines the answer.
The controller or technical accounting team owns this judgment and its documentation. FP&A owns the consistent use of the approved conclusion in management reporting. An analytics calculation cannot replace reviewing the underlying agreements and facts.
| Question | Principal: gross presentation | Agent: net presentation |
|---|---|---|
| Nature of the promise | Provide the specified good or service | Arrange for another party to provide it |
| Control before transfer | Company controls the specified good or service | Company does not control it |
| Revenue amount | Gross consideration to which the company expects to be entitled | Fee or commission to which the company expects to be entitled |
| Supplier amount in the simple example below | Reported separately as cost | Amount owed to the provider is excluded from the agent's revenue |
| Cash collected from the customer | May equal the full customer payment | May also equal the full customer payment |
A principal can use another party to perform work on its behalf; outsourcing does not by itself establish agency. ASC 606-10-55-37 and 55-37A address control of goods, rights to services and inputs combined into a specified output.
For an agent, the recognized amount is the earned arranging fee or commission, which may be the consideration retained after paying the provider. That treatment follows ASC 606-10-55-38. The word net describes this presentation; it does not mean the company's final profit.
For that separate distinction, see revenue vs profit. For deductions from sales, use credit notes and returns in revenue measures.
Consider a fictional US commercial services company reviewing September 2026. The accounting team has already approved the principal-versus-agent conclusions for the specified services below. Each line's performance obligation was satisfied during the month, and the amounts contain no sales taxes, refunds, financing components or timing differences.
The company invoices customers and pays the providers in all three arrangements. Those cash mechanics do not determine the approved classifications.
| Arrangement | Approved role | Customer billings (USD) | Supplier amount (USD) | Recognized revenue (USD) | Listed supplier cost in P&L (USD) | Revenue less listed cost (USD) |
|---|---|---|---|---|---|---|
| A: managed service | Principal | 100,000 | 70,000 | 100,000 | 70,000 | 30,000 |
| B: arranged service | Agent | 80,000 | 60,000 | 20,000 | 0 | 20,000 |
| C: managed service | Principal | 120,000 | 90,000 | 120,000 | 90,000 | 30,000 |
| Total | 300,000 | 220,000 | 240,000 | 160,000 | 80,000 |
The agency fee for B is $80,000 minus $60,000, or $20,000. The supplier's $60,000 is excluded from this company's revenue and from the listed supplier expense. A and C retain their full customer consideration in revenue, with their supplier costs reported separately.
The reconciliation is:
Recognized revenue in this example = Customer billings − Provider consideration excluded for agent arrangements
$300,000 − $60,000 = $240,000
Two checks prove the arithmetic. First, recognized revenue less listed supplier costs is $240,000 minus $160,000 = $80,000. Second, total customer billings less all supplier amounts is $300,000 minus $220,000 = $80,000. The same economic spread is visible through both views.
This simplified bridge works because billings and performance align. Real files can also need deferred revenue, unbilled revenue, credits and other adjustments; reconcile those separately using bookings, billings and revenue.
Using $300,000 of gross transaction billings as reported revenue would overstate revenue in this example by $60,000. If the same amount were also incorrectly added to supplier expense, the $80,000 spread would still reconcile. A correct profit total therefore does not prove correct revenue presentation.
Suppose the listed costs are the only direct costs for this illustration. The resulting gross profit margin is $80,000 / $240,000 = 33.3%, rounded to one decimal place. Dividing the same spread by raw billings gives 26.7%, a different denominator that must not be mislabeled as the reported margin.
Keep gross transaction volume, recognized revenue and earned arranging fees visibly labeled in commercial reviews. A shift toward agent activity can change the relationship between customer billings and revenue even when the business handles similar customer spending. Budget comparisons and sales productivity ratios need the same approved presentation on both sides.
Retain the contract identifier, specified service, reporting period, approved role, accounting memo reference, customer amount, provider amount, recognized revenue and relevant cost. Include an owner and approval date so reviewers can find the basis for the classification.
Revisit the assessment when contractual rights or actual delivery arrangements change. The SEC staff's discussion of principal-versus-agent judgments emphasizes evaluating the specific facts, contractual terms and changes over time. It illustrates staff observations rather than replacing the authoritative standard.
Upload the accounting team's approved classification and revenue reconciliation schedule, or bring a Google Sheet. Covirage maps the columns; its tools compute and check the billings-to-revenue bridge, and the external AI model explains the result with every figure traced to its rows. Create a free Covirage account and bring a sample of your own data; accounting approval remains with your finance team.
See FP&A reporting for the supporting approach to reviewing your finance files.
Presentation follows the facts and the applicable accounting guidance; it is not a choice made to reach a revenue target. Finance must identify the specified goods or services and assess control before transfer. Contract terms and the actual arrangement matter more than a preferred reported revenue figure.
No. An agent can collect a customer's payment and pass most of it to the provider. Cash handling alone does not establish control of the specified good or service. Keep the bank reconciliation separate from the accounting assessment that supports gross or net revenue presentation.
Yes. The assessment applies to each specified distinct good or service, or distinct bundle, promised to the customer. A contract may therefore contain both presentations. The reconciliation schedule needs separate lines where the approved conclusions differ, with allocations supported by the accounting analysis.
No. Principal-versus-agent presentation concerns the nature of the company's promise and control before transfer. Discounts, returns and allowances adjust the transaction price or sales amount under their applicable policies. A principal can still report sales after returns while using gross principal presentation.