Module I· Revenue Recognition (IFRS 15)Basic
Question
What is gross versus net revenue reporting? Give the standard example.
Answer
Gross reporting
Company reports the full customer price as revenue and records supplier cost in COGS. This applies when it is principal.
Net reporting
Company reports only the commission or spread as revenue. This applies when it is agent.
Standard example
Marketplace sells a product to a customer for $100 and keeps a $15 commission. If agent, revenue is $15. If principal, revenue is $100 and COGS includes the supplier cost.
Why it matters
Gross versus net can massively change revenue scale and margin percentage, while gross profit may be similar. Revenue multiples must be adjusted to the business model.