Spread each sales commission over the years the customer stays.

The renewal rate sets the period.

A commission you pay only because a contract was signed is an asset, and you must record it as one if you expect to recover it (IFRS 15 paragraphs 91 and 92, mirrored in ASC 340-40-25-1 and 25-2). The one escape is the practical expedient in paragraph 94: expense it when incurred if the amortization period would be one year or less. So everything turns on the period.

The FASB staff answered that in TRG Agenda Ref No. 57. If the renewal commission is commensurate with the first one, meaning roughly the same percentage of contract value, the first commission belongs to the first contract only. If renewals pay less, or nothing, the period has to run past the first contract to cover the renewals you expect. The staff gave 6% against 2% as an example of not commensurate, and said the test is proportion to contract value, not how hard each sale was to make.

One new customer, US GAAP, year end 31 December

Annual subscription, starts 1 July 2026        60,000
Commission on new business, 10%                 6,000
  paid to the rep in July 2026
Commission on each renewal, 3%                  1,800
Customers lost each year, from history            20%
Expected customer life     1 / 0.20 =  5 years (60 months)

The 3% renewal rate is well short of 10%, so the period runs past the first year and the practical expedient is off the table. For the length, the staff called the average customer term a reasonable choice. With annual contracts and 20% of customers leaving each year, the expected life is 1 + 0.8 + 0.8² and so on, which comes to 1 / 0.20, or five years.

July 2026, when the commission is earned

                                        Dr        Cr
Deferred commissions                 6,000
  Commissions payable                          6,000

Each month from July 2026, customer life method

Sales commission expense               100
  Deferred commissions                           100

Four ways to book the same commission.

Here is the same 6,000 under the four methods we see most often, for the six months to 31 December 2026.

The first two rows are the usual audit adjustments. Expensing when paid looks safe, but the expedient only applies when the period is a year or less. Amortizing over the first term looks like matching revenue, but it is only right if renewals pay about 10% too.

The split method is less familiar. PwC’s guide reasons that 1,800 of the 6,000 is what you will pay again at every renewal anyway, so that part relates to the first year. Only the 4,200 extra is buying the renewals. It puts more expense in the first year and leaves less on the balance sheet if the customer leaves early. Pick one method, write it in the policy and use it for every deal.

Watch the length as well. The FASB staff warned that a customer life can outrun the product: a commission paid twenty years ago has little to do with what you sell today. Five years of history at a company that is four years old is also a guess, so keep the working.

When a customer gives notice, spread what is left over the time remaining.

Current guides, such as Beancount’s ASC 340-40 guide, point to an impairment test when a customer looks likely to leave. In practice that test rarely bites at notice. It compares the asset with the revenue still to come (paragraph 101, ASC 340-40-35-3), and three months of a 60,000 contract is 15,000 against an asset of about 5,000. What has changed is the period. Paragraph 100 says to update the amortization for a significant change in timing, as a change in estimate, so the balance runs off over the months left.

The customer gives notice on 1 April 2027
and leaves when the first term ends on 30 June 2027

Customer life method
  balance at 1 April 2027   6,000 - 9 x 100   =  5,100
  spread over April to June                   =  1,700 a month

Split method
  balance at 1 April 2027   450 + 3,570       =  4,020
  spread over April to June                   =  1,340 a month

If nobody hears until 30 June, the balance left
that day (4,800, or 3,360 split) is expensed then.

The earlier you hear, the smoother the expense. That is a good reason to send cancellation notices to finance as well as to customer success.

Before the first audit, build the opening balance.

Most companies that have expensed commissions as paid find this out during the first audit, when the auditor asks for the deferred commissions balance at the start of the year. You need it for every past deal still within its period. A cohort table by year is a fair first pass if commissions were paid fairly evenly through each year. Take out deals whose customers have already left, and count six months of amortization in the year paid.

In this example, 342,000 of asset was missing from the balance sheet. It goes to opening retained earnings rather than through 2026 profit. If you have issued GAAP statements for earlier years, treat it as an error correction and talk to your auditor about how to present it. Then check the cohort figure against a deal by deal schedule for the largest commissions, because an auditor will test a sample of deals, not the cohort average.

What to have ready.

• A short policy: which payments are capitalized, the commensurate test with your actual new and renewal rates, the chosen method and the period.
• The customer life working: churn by year from your own history, and why the result is not longer than your product has looked roughly the same.
• A schedule per deal tying to the commission plan payout, the contract and the general ledger balance.
• A monthly step that brings in cancellation notices and shortens those schedules.
• The disclosures in ASC 340-40-50: the judgments made, the amortization method, the closing balance, and the amortization and any impairment for the period.

Running deferred commissions in Rivane today.

Rivane has no commission plan module, so the commission itself reaches the ledger the way your payroll or commission tool sends it, or as a journal entry. From there, each deal is an amortization schedule: Deferred commissions as the asset account, Sales commission expense as the expense account, the amount, the start and end dates, and a method.

# A commission as a Rivane amortization schedule, as built.

asset account     Deferred commissions
expense account   Sales commission expense
amount            6,000
start, end        1 July 2026, 30 June 2031
method            straight line (also: units of activity,
                  declining balance, sum of the years' digits)
lines             60 monthly lines of 100, which always sum
                  to the amount; the last line takes rounding
posting           each line posts Dr expense, Cr asset;
                  auto post picks up lines as they fall due
                  and skips a locked period rather than
                  forcing into it
shown             Amortized and Remaining on the schedule
actions           Pause, Resume, Cancel

For the split method, set up two schedules on the same deal: 1,800 over twelve months and 4,200 over sixty. When a customer gives notice, Rivane does not shorten a schedule for you. Cancel stops the pending lines and posts nothing, and the Remaining figure shows what is still in the asset. Create a new schedule for that amount over the months left, 5,100 from April to June in the example. Rivane does not split the asset between current and non-current today, so do that by journal entry at year end from the pending lines.

The short version.

Capitalize the commission. Compare the renewal rate with the new business rate: if renewals pay less, spread the first commission over the expected customer life, or split it as PwC describes. When a customer gives notice, spread what is left over the time remaining. Before the first audit, build the opening balance from past deals. In the example, that is 600 of expense in the first half year instead of 6,000, and a 342,000 opening asset.

To see how Rivane posts schedules like these each month, read how Rivane handles prepaids and accruals.

Sources

• IFRS 15 Revenue from Contracts with Customers, paragraphs 91 to 104, as published in Commission Regulation (EU) 2016/1905. Incremental costs of obtaining a contract, the one year practical expedient, amortisation, updating the period as a change in estimate, and impairment.
• FASB Revenue Transition Resource Group, Agenda Ref No. 57, Capitalization and Amortization of Incremental Costs of Obtaining a Contract (7 November 2016), as reproduced on PwC Viewpoint. The staff view on commensurate renewal commissions and on using the average customer term, quoting ASC 340-40.
• PwC, Revenue from contracts with customers guide, section 11.4 Amortization and impairment (15 September 2025). Example RR 11-12 allows the split of an initial commission between the first term and the customer life, and notes US GAAP impairment losses cannot be reversed.
• Beancount, Capitalizing Sales Commissions: A SaaS Guide to ASC 340-40 (17 May 2026, updated 10 August 2026). Read as a current answer.

A note on how this was researched. IFRS 15 paragraphs 91 to 104 were read in the text the EU published, downloaded and read directly. TRG Agenda Ref No. 57 and PwC’s section 11.4 were read in full on PwC Viewpoint, and the Beancount guide was read in full. The customer, the rates and every amount are examples. The Rivane section describes the product as built today, checked against the amortization code rather than marketing copy. This is not accounting advice for your specific case.

On embedded social posts: we looked for public posts from standard setters or practitioners on commission amortization periods and found none we could verify as current and relevant, so this article uses ordinary citations instead.