Acccounting treatment for sole distributor of company product?

Disha,

It depends on how you want to track it.

1) You could track it as 100% of the sale to the end customer, and then a counter revenue booking of the 40% to the distributor, giving a net revenue (and Net AR) of the 60%. Since you are only receiving the 60%, that seems neater and easier to track, and just tag the customers on each item owed by the disti to you.

CR: Revenue 100%
DR: Contra Rev 40%
DR: AR 60%

2) The other, longer, way to handle it is you do both of the Revenue transactions, but send one into Disti AP, and one into Customer AR. Have a second Distributor AR account, that you offset the two items from D-AP and C-AR. So, at the end of the period D-AP and C-AR go to zero, and it is all in D-AR.

CR: Revenue 100%
DR: Contra Rev 40%
DR: C-AR 100%
CR: D-AP 40%
then
DR: D-AP 40%
CR: C-AR 100%
DR: D-AR 60%

You can also offset it *when paid*, which is when your risk goes away, if you want to be able to show customer-specific risk, but I'd rather handle it like #2

KP

I would go the simplest route in recording the transaction. The distributor is a separate legal entity and should be treated as such. The 40% that the distributor takes should be a distribution expense for the company. I differ on the Contra Revenue account as it (the 40%) does not really represent the nature of a revenue contra account like Sales Returns or allowances or discounts.

CR Sales/Revenue 100%
DR Distribution Expense (or whatever expense you want to call it) 40%
DR AR 60%

I would however suggest that the distributor bills you or executes an invoice for the 40% along with whatever report they furnish you at the end of the month to keep the records/books clean, (Note: without the invoice, your distributor may be avoiding recognizing revenue thus avoiding taxes which I do not think you want to be a party to.).

DR A/R 100%
CR Sales/Revenue 100%

Receipt of payment
DR Cash 60%
DR Distribution Expense (or whatever expense you want to call it) 40%
CR AR 100%