If an employee is receiving a commission, then the company withholds income taxes on the amount of the commission paid to the employee. Under the cash basis of accounting, you should record a commission when it is paid, so there is a credit to the cash account and a debit to the commission expense account. This is a debit to the commission expense account and a credit to a commission liability account (which is usually classified as a short-term liability, except for cases where you expect to pay the commission in more than one year).

Under the accrual basis of accounting, you should record an expense and an offsetting liability for a commission in the same period as you record the sale generated by the salesperson, and when you can calculate the amount of the commission. A commission may be earned by an employee or an outside salesperson or entity.

Less-common commission structures are based on the gross margin or net income generated by a sale these structures are typically less used, since they are more difficult to calculate. The commission may be based on a flat fee arrangement, or (more commonly) as a percentage of the revenue generated. A commission is a fee that a business pays to a salesperson in exchange for his or her services in either facilitating, supervising, or completing a sale.