| Uber deals with this by calling their topline "Gross Bookings" (which includes the driver portion of each ride) and then starting a new P&L below that with Revenue as the new topline. The GAAP guidance instructs companies to make the determination whether they're the principal or the agent with the following criteria: 1. You are the primary obligor in the sales transaction. This means, are you responsible for providing the product or service, or is the supplier? If you’re doing the work or shipping the product, you can probably record at gross. 2. You have general inventory risk. If you take title to the inventory before you sell it to the customer, and you take title to any returns from customers, you can probably record revenue at gross. 3. You can select suppliers. This one is important, since it implies that there isn’t some key supplier operating in the background who’s actually running the transaction. 4. You have credit risk. This means that if the customer does not pay, then you absorb the loss, and not a supplier. However, if you’re only at risk for losing a commission if the customer doesn’t pay, then you’re probably looking at recording the revenue at net. 5. If you get to set the price, then you probably have control over the entire transaction, and you can record the revenue at gross. 6. The amount you earn is fixed. This indicates a commission structure, which is sometimes set up as a fixed payment per customer transaction. If you earn a percentage of what the customer pays, this is also an indicator that you report revenue at net. In either case, you’re really just an agent for someone else. 7. The other two guidelines for reporting at net are just the reverse side of some earlier guidelines. If a supplier has credit risk, or if a supplier is responsible for providing products or services to the customer, then you’re probably looking at reporting revenue at net. There's a pretty comprehensive document from the 'Emerging Issues Task Force' of the FASB here: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=121... |