Principal-versus-agent revenue presentation

Principal-versus-agent analysis begins with each specified good or service promised to the customer. The entity can be principal for one specified item and agent for another. ASC 606-10-55-36 therefore requires an item-level analysis rather than one label for the entire contract.

For each item, identify the distinct good, service, or bundle and ask whether the entity controls it before transfer. A principal may provide the item itself or use a subcontractor. Brief legal title does not by itself prove control. An agent arranges for another party to provide the item and does not control it before transfer. These steps and outcomes appear in ASC 606-10-55-36A through 55-38.

Primary responsibility for fulfillment, inventory risk, and discretion in setting price can indicate control. Their relevance and weight depend on the specified item and contract terms. They are evidence, not votes, and an agent can have some price discretion. ASC 606-10-55-39 through 55-39A states this relationship.

A principal recognizes the gross consideration for satisfying its obligation. An agent recognizes its fee or commission, which can equal the amount retained after paying the provider. Invoice direction and gross cash receipts do not settle the control question. Preserve the customer and supplier contracts in the decision record. Study the worked Cedar Trail example, then complete the independent Northstar practice.