Should a company that acts as a distributor or reseller of products or services record revenues as gross or net?
The SEC staff assigned this issue a priority level of 1 and the EITF placed it on its technical agenda as Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The FASB staff summarized this issue as follows: The issue is whether a company should recognize revenue in the amount of the gross amount billed to the customer because it has earned revenue from the sale of the goods or services or whether the company should recognize revenue based on the net amount retained (the amount paid by the customer, as defined above, less the amount paid to the vendor-manufacturer) because, in substance, it has earned a commission from the vendor-manufacturer of the goods or services on the sale. [This is] an increasingly important issue because investors appear to value the stock of certain companies based on a multiple of gross revenues rather than a multiple of gross profit or earnings. The EITF reached a consensus on Issue No. 99-19 at its July 2000 meeting. Its resolutio
