Question

Managerial commission calculation in final accounts

Answer 1

Manager's Commission on Net Profit :

Sometimes, in additional to his regular Salary, the manager is entitled to a commission on Net Profit. This is done to induce him to take more interest in the business. Since, the Commission is always calculated at the end of the accounting period. So, it is treated as Outstanding expenses. Therefore, the adjustment entry for manager's commission will be as follows.

Adjustment Entry :-

Commission A/c. Dr.
To Outstanding Commission A/c.

(Being Manager's commission payable)

Treatment in Final Accounts :-

1. It will be recorded on the debit side of profit and loss Account. Because it's an expense for business firm.

2. On the other hand, It is shown on the Liabilities side as an outstanding expense.

Calculation :-

The manager's Commission can be calculated as :-

a) After Charging commission on Net Profit :

Net profit × Rate/100+Rate

b) Before Charging Commission on Net Profit :

Net profit × Rate/100