Before taking funds less than ASC 606, an entity need certainly to determine whether it is a primary otherwise an enthusiastic representative for every assured a great otherwise service. This class impacts the level of cash acknowledged by an entity-a main knows incomes within gross matter gotten for the goods and services, if you are a representative comprehends funds at the internet number (we.age., the price or commission the latest entity gets). While the applying of that it suggestions try impractical to switch an entity’s net gain, it does significantly change the best-line money and terrible money percent, which are important factors of the property value an organization.
The key difference between a primary and you will an agent ‘s the nature of the performance duty getting met. The main has actually a speeds obligations to own given an effective or service into the stop consumer, while the fresh representative only organizes to the dominant to provide the given a great otherwise services (ASC 606-10-55-36). A binding agreement which have a customers are priced between more than one specified a otherwise solution, and you can an entity is a representative for some and you may an effective prominent for other people.