Deferred commission accounting

Some companies capitalize commission as an asset and recognize it as expense over a benefit period instead of expensing it immediately. The Deferred commission accounting module (DEFERRAL_ACCOUNTING) provides the mechanics: it posts capitalized commission to a deferred asset account, builds a monthly recognition schedule for each layer, and moves the due amounts to expense through governed accounting proposals.

Before you start

• Switch on Deferred commission accounting in Commission Feature Management. When you switch it on, the app offers to prepare its defaults: an Active accounting policy CAPITALIZE ("Capitalize and amortize straight line over 12 months") and a matching policy setting with a 12-month benefit period. See Turn features on as you grow.
• Accounting posting must be set up. See Accounting and posting.
• You need finance-wide access for the deferred asset pages and actions.

Step 1: Set up accounts and the benefit period

1. Open Commission Account Mappings and edit the mapping used by the capitalized components. In Role accounts, set the Deferred Asset Account No. (debited instead of expense) and, optionally, the Amortization Account No. (blank uses the commission expense account). A capitalize policy without a deferred asset account is refused (BAA-ACC-DEFERRED-ASSET-ACCOUNT).
2. Open Commission Accounting Policy Settings and review the line for the capitalize policy:

Field	What it does
Benefit Period Source	Policy Months amortizes over a fixed number of months. Plan Version Period amortizes over the plan version's effective period, which then needs both effective dates.
Benefit Period Months	The number of monthly recognition periods for Policy Months. At least one month.
Closed Period Target	Where a posting goes when its original period is closed.

Create your own capitalize policy

If you need another benefit period, for example 36 months, create your own policy instead of changing CAPITALIZE:

1. Open Commission Accounting Policies and choose New accounting policy.
2. Enter a code, a description and the effective dates, choose Capitalize and Amortize in Recognition mode, and enter Benefit period months (1 to 600).
3. Choose OK, then Validate and Activate on the draft.

The app amortizes the policy straight line and saves the benefit period in the policy setting of the new version. Capitalize and Amortize is only offered while the module is on. To change an active capitalize policy, choose New version. See Accounting and posting.

Step 2: Use the policy on plan components

On a draft plan component, choose the capitalize policy in Accounting Policy. The policy must be active and cover the component dates. From then on, earnings of that component are capitalized when their settlement accrual posts. See Plans, versions, and assignments.

Choosing a Capitalize and Amortize policy requires the module to be on. If the module is off, the choice is refused with BAA-FEATURE-OFF.

What happens at posting

When the accounting proposal of a settlement is built and posted:

• Capitalized earnings debit the deferred asset account instead of commission expense. Expense-policy earnings in the same settlement are expensed as usual.
• The app creates a deferred commission layer per participant, component and plan version, with a monthly schedule. Recognition only starts once the capitalization proposal is posted. Each month's share is due on the last day of that month. Any rounding remainder falls in the last period.

Open Deferred Commission Assets to see the layers:

Field	What it shows
Posting Date	When the commission was capitalized.
Participant ID, Component ID, Accounting Policy Code	Whose commission, from which component, under which policy.
Benefit Period Start / End / Months	The recognition window.
Original Asset Amount	The capitalized amount.
Recognized Amount / Remaining Amount	What posted amortization has already moved to expense, and what is left.
Current Portion / Non-current Portion	The remaining balance due within twelve months of the work date, and after.
G/L Account No.	The deferred asset account.

Choose Schedule lines to see Deferred Schedule Lines: each period's Recognition Date, Scheduled Amount, whether it is Recognized, and the Remaining Amount. Choose Capitalization proposal to open the proposal that created the layer.

Step 3: Recognize amortization

1. On Deferred Commission Assets, choose Recognize amortization and pick a date.
2. The app builds one accounting proposal (event scope AMORT- followed by the date) that moves every schedule line due on or before that date from the deferred asset to expense.
3. Validate, approve and post the proposal like any other accounting proposal.

Schedule lines are only marked recognized after the proposal posts. If you cancel the proposal, its lines are due again. Running recognition again while a proposal is open creates no second proposal. A late run catches up all due lines and keeps each line's scheduled date as evidence.

You can automate step 1 with the job queue entry "Bitta Commission deferred commission amortization", created on hold by Register Scanner Jobs on Commission Source Capture Setup. The job builds the proposal through the work date. The proposal still needs validation, approval and posting.

Every recognized amount is recorded on Commission Deferral Entries, an append-only record with the recognition date, amount, layer, schedule line, proposal and accounting entry.

Impair a layer

If your finance owner decides that the remaining asset of a layer should be written off:

1. Select the layer on Deferred Commission Assets and choose Impair layer.
2. Enter the date, a reason code and an evidence reference.
3. The app appends an impairment row to the schedule with the next modification sequence number. The original rows are not changed.
4. Run Recognize amortization through the impairment date and post the proposal to post the write-off.

Only a layer whose capitalization proposal is posted can be impaired, and only once. The impairment date cannot precede the capitalization posting date, and any open amortization proposal for the layer must be posted or cancelled first.

Reporting

The Commission Cost Disclosure (ASC 340-40 / IFRS 15) report, available from the Bitta Commission role center when the module is on, shows capitalized cost, amortization by period, the remaining asset and impairments. The finance role center cues also show the deferred asset balance.

How it works behind the scenes

• Schedule rows and deferral entries cannot be modified, deleted or renamed. Changes are appended as new rows with a modification sequence number, reason and evidence reference.
• Each layer and schedule row carries a frozen hash.
• Accrual adjustments are not supported for Capitalize and Amortize policies (BAA-ACC-ADJUSTMENT-CAPITALIZE). Settle the correction in a later settlement instead.

Related pages

• Accounting and posting
• Reconciliation
• Role centers and reports