IFRS 15 Principal vs Agent: Gross or Net Revenue?

What does IFRS 15 principal vs agent change?

IFRS 15 principal vs agent answers a practical question: when a customer pays your business and another supplier helps deliver the order, how much of that payment is your revenue? The answer can change reported sales substantially even when the cash passing through the bank looks identical.

A principal controls the specified good or service before the customer receives it. An agent arranges for another party to provide it. Once the relevant promise is fulfilled, the principal reports the consideration for its supply as revenue; the agent reports its fee or commission. Assess the arrangement before choosing the account names.

This is one part of [revenue recognition](/glossary#revenue-recognition). Timing still matters: collecting money and completing a promise are separate events. The [IFRS Foundation's IFRS 15 overview](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/) connects recognition to the transfer of promised goods or services. Our [five-step revenue guide](/learn/ifrs-revenue-recognition) covers that wider model. Here, we focus on control, presentation and settlement entries.

Picture a month-end reviewer comparing an order report, the bank statement and the revenue account. Each report can be correct while showing a different total. The order report may include money collected for suppliers; the revenue account should reflect the business's own fulfilled promises. A reconciliation explains that difference.

The two cases below are fictional Saudi businesses with simplified contracts. All amounts are in SAR. Tax effects, financing, refunds and other operating costs are excluded from the calculations so you can follow the revenue logic. These are teaching assumptions, not conclusions about the tax treatment of a real transaction.

How do you assess IFRS 15 principal vs agent?

Start by naming the specified good or service. Write a concrete phrase such as 'the 20 chairs ordered by the customer' or 'the confirmed training seat provided by the training company'. A description such as 'the transaction' is too broad to support a useful conclusion.

Next, ask whether your business controls that item before transfer. Examine what the contracts let the business direct, what benefits it can obtain and what it is responsible for delivering. Physical storage is useful evidence in some arrangements, but the assessment also applies to services and rights.

Paragraphs B34 to B37A provide the framework. The [New Zealand standard-setter's equivalent IFRS 15 text](https://standards.xrb.govt.nz/standards-navigator/nz-ifrs-15/) reproduces the relevant requirements. The control indicators include responsibility for fulfilment, inventory risk and discretion over price. Their relevance varies with the contract; counting how many point in each direction does not replace judgment. A business can be principal for one distinct supply and agent for another in the same contract.

Use a short evidence sheet before making the entries:

• Promise: describe exactly what the customer is entitled to receive.
• Contract evidence: identify the clauses dealing with delivery, acceptance, substitution and cancellation.
• Control evidence: explain which rights and obligations support the conclusion.
• Accounting consequence: identify the amount of revenue and the event that earns it.

For example, a purchase invoice tells you an amount was billed. It may say little about whether goods can be redirected to a different customer. A settlement statement shows how money is divided, but it may omit who must remedy unacceptable delivery. Read those documents together.

Keep the conclusion specific enough that another accountant could challenge it. 'We are an online platform' describes a business channel. 'Our only promise is to arrange a seat that the provider controls and delivers' describes an obligation that can be evaluated against the contract.

Worked example 1: a reseller records gross revenue

Rimal Office Supplies, a fictional Riyadh business, purchases 20 identical chairs for SAR 600 each. It controls the chairs, can sell them to any customer and bears the risk of unsold stock. Rimal sets its selling price and is responsible to its customer for supplying acceptable chairs. It sells all 20 for SAR 800 each, on credit, and transfers control on delivery. Assume no further promises remain.

The cost is SAR 12,000: 20 × SAR 600. The sale is SAR 16,000: 20 × SAR 800. On these facts Rimal is the principal. The analysis is supported by its control of the chairs before the sale, including the ability to choose their customer.

Record the purchase from the supplier as a [journal entry](/glossary#journal-entry):

At delivery, record the sale and release the inventory cost. The next table contains two balanced entries, grouped for the delivery date:

Rimal reports SAR 16,000 revenue and SAR 12,000 cost of sales. Gross profit from these chairs is SAR 4,000. Reporting only SAR 4,000 as sales would remove both the controlled goods revenue and their cost from the presentation. The margin alone does not describe Rimal's performance obligation.

Later, collection is a debit to cash and a credit to trade receivables for SAR 16,000. Payment is a debit to trade payables and a credit to cash for SAR 12,000. Neither settlement creates new revenue or a second inventory expense. With zero opening balances and no other activity, receivables, payables and chair inventory all close at zero, while cash has increased by SAR 4,000.

Use the delivery document to support the recognition date and the supplier invoice to support cost. This case assumes those events and amounts are established; a real review would also examine returns, acceptance conditions and other promises.

Worked example 2: a booking intermediary earns commission

Namaa Bookings, a fictional Jeddah intermediary, arranges 10 training seats at SAR 2,000 each. The independent training provider controls the seats, sets the customer price and is responsible for delivering acceptable training. Namaa cannot redirect or use the seats, does not buy unsold capacity and has no obligation to provide the training itself. Its promise is limited to arranging confirmed bookings.

The contract gives Namaa a fixed 12% commission, earned when each booking is confirmed. Assume every booking is confirmed at collection, no cancellation or refund rights remain, no additional service is owed, and the customer pays Namaa the full amount. Namaa is contractually entitled to retain its commission and owes the remaining balance to the provider. These explicit assumptions determine both the role and the timing.

Customer collections are 10 × SAR 2,000 = SAR 20,000. Commission revenue is SAR 20,000 × 12% = SAR 2,400. The provider's share is SAR 20,000 − SAR 2,400 = SAR 17,600. Namaa is an agent for the training supply on the stated facts.

At collection and confirmation:

When Namaa remits the provider's share:

The provider payable closes at zero and SAR 2,400 cash remains from these transactions. Namaa reports SAR 2,400 revenue. It does not record the SAR 17,600 remittance as its cost of sales: that payment settles an amount already owed to another party. Its own staff or payment-processing costs would be considered separately if present.

Change one fact and review timing again. If Namaa receives money before earning its commission, the immediate revenue entry above is premature. Identify the amounts owed and the unfulfilled arranging obligation from the actual agreement. Do not assume that the bank receipt itself proves that the commission has been earned.

How do you reconcile collections, revenue and supplier balances?

Build the month-end reconciliation around the conclusion, then trace it into the [general ledger](/glossary#general-ledger). For Rimal, the customer balance follows the sale and collection; the supplier balance follows the purchase and payment. For Namaa, the provider payable tracks money collected on the provider's behalf and subsequently remitted.

Suppose Namaa has confirmed all 10 bookings and collected SAR 20,000, but remits only SAR 10,000 before month-end. This is a variation of the previous case, with the same commission terms. The provider's entitlement is still SAR 17,600, leaving SAR 7,600 payable. The cash retained so far is SAR 10,000. Of that balance, SAR 7,600 is owed onward and SAR 2,400 corresponds to earned commission.

The reconciliation is: opening provider payable of zero + SAR 17,600 accrued − SAR 10,000 remitted = SAR 7,600 closing payable. Revenue remains SAR 2,400. The amount temporarily sitting in the bank does not increase the fee earned.

As a second, separate sensitivity, change only the commission rate from 12% to 10%. If all other original facts hold, revenue becomes SAR 2,000 and the provider's share becomes SAR 18,000. This calculation changes the fee; it gives no new evidence about control. Keep the rate change separate from the partial-remittance variation when reviewing a learner's answer.

A useful working paper assigns each booking a reference, confirmation date, gross collection, commission, provider entitlement and settlement date. Total each column, reconcile the cash movements and explain any remaining payable. These are suggested control records, not additional presentation rules imposed by IFRS 15.

If the accounting mechanics need a refresh, follow the [step-by-step journal-entry guide](/learn/how-to-record-journal-entries). Start with the underlying obligation and then check that the debits and credits describe the same event.

What changes for software licences and mixed arrangements?

Digital supply chains often make the evidence less visible. A reseller may speak to the customer, issue the invoice and collect the money while the manufacturer creates a licence in the customer's name. Map the rights between all three parties before extending a conclusion from a physical-goods example.

The IFRS Interpretations Committee's [final software-reseller agenda decision, published in May 2022](https://www.ifrs.org/news-and-events/updates/ifric/2022/ifric-update-april-2022/), explains how to assess a specific licensing arrangement. It does not declare every software reseller an agent or every price-setting reseller a principal. The overall conclusion depends on the contractual facts and the evidence of control.

In that decision, advice provided before the customer contract was entered into was not an additional promised service under the stated circumstances. That observation should not be stretched into a rule that implementation, support or advice can never be separate services. Establish what remains promised in the arrangement you are reviewing.

For your working paper, draw three boxes: supplier, business and customer. Label each arrow with a right or promise rather than only an invoice amount. Then identify any documents missing from the file. This simple diagram often reveals that the customer terms and the supplier terms describe different responsibilities.

For a mixed arrangement, write separate conclusions for genuinely distinct supplies before preparing a combined revenue schedule. A business might arrange access to another party's service and also perform a distinct service using its own staff. The combination needs analysis of promises, allocation and timing; the existence of one agent component does not settle every component.

Keep this section as a review method. It deliberately gives no monetary conclusion for an unspecified software contract. An answer becomes useful once the rights, deliverables and acceptance terms are known, and the accounting conclusion can be traced to them.

Which common mistakes distort the answer?

The most common errors start with an accounting shortcut before the contract has been understood. Give yourself a short review pass after preparing the numbers, especially when a sales report is being imported automatically into the ledger.

• Starting from the bank statement. Namaa collects SAR 20,000, but its fulfilled arranging service earns SAR 2,400. The collection contains more than its own revenue.
• Choosing the result from the margin. Rimal's SAR 4,000 gross profit does not make it an agent. The control assessment explains why its sales and cost of sales are presented separately.
• Counting indicators as votes. Record what the relevant rights mean in the specific arrangement. A price-setting clause needs context.
• Expensing the provider remittance twice. Namaa's SAR 17,600 settlement clears the provider payable. It does not create another expense after the commission has been recorded net.
• Mixing a role conclusion with a timing conclusion. Even after identifying an agent, establish when its arranging service is fulfilled.
• Copying one conclusion across every contract. A new delivery promise, an unsold-capacity commitment or different acceptance terms can require fresh analysis.

Keep recognition connected to the wider model. [ACCA's current revenue technical article](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/revenue-revisited.html) explains the assessment of distinct promises and recognition as obligations are satisfied. It is a useful companion when the contract includes more than a simple sale or arranging service.

Before closing the file, ask a colleague to reconstruct one transaction from the documents without seeing your conclusion first. If the evidence is ambiguous, record which missing clause or confirmation would resolve it. A balanced entry proves arithmetic consistency; a documented contract assessment explains whether the entry represents the transaction.

Practice the decision before checking the entries

Rework both cases on a blank page. For each, write the promised item, the evidence about control, the recognition event, the revenue amount and the settlement entries. Keep the answer short enough that another learner can follow your reasoning without guessing at an unstated contract term.

For Rimal, your check figures are SAR 16,000 revenue, SAR 12,000 cost of sales and SAR 4,000 gross profit. For Namaa, they are SAR 20,000 collected, SAR 2,400 commission and SAR 17,600 owed to the provider before remittance. Explain why both cases can end with cash equal to their transaction margin while having different revenue presentations.

Then try the variations separately. First, leave part of Namaa's provider share unpaid at month-end. Next, restore full settlement and change the commission rate. Finally, remove the assumption that confirmation completes every promise. For that last change, list the additional contract information you need before choosing a recognition date.

Review errors by cause: a control conclusion, an incorrect percentage, a timing assumption or a settlement posted to the wrong account. Rework the relevant part and explain the correction in one sentence. This method lets you see whether the difficulty sits in the contract analysis or the mechanics of the entry.

Continue with [accounting practice in Accountery](/practice) to work through journal entries and review your postings. Use the fictional cases here as your own working-paper exercises; the link takes you to the practice workspace and does not promise these exact cases are included.

The practical goal is a clear chain from contract evidence to revenue, from revenue to the entry, and from the entry to the closing balances. Keep that chain visible whenever customer collections include money that belongs to another party.