Deferred commissions under ASC 340-40: a worked amortization schedule from CRM to ERP

Under ASC 340-40, a sales commission earned because a contract was signed is capitalized as an asset and amortized over the period the customer receives the related service, often including expected renewals. In practice, that means every closed-won deal in your CRM becomes a layer in an amortization schedule, and the schedule posts one entry to the ERP every month. This post works a three-deal portfolio through a quarter, including an upsell and an early termination, and ends with the rollforward your auditor will ask for.

Key takeaways

• ASC 340-40-25-1 requires capitalizing incremental costs of obtaining a contract if you expect to recover them. A sales commission is the standard's own example.
• The period of benefit depends on whether renewal commissions are commensurate with the initial commission. If they are lower, the initial commission is usually amortized over a longer period that includes expected renewals.
• Each commission is its own layer. A new-logo commission and an upsell commission on the same customer amortize separately.
• An early termination ends the period of benefit. In our hypothetical example, $8,200 of remaining asset is expensed in the month the contract ends.
• The schedule must tie to the GL every month. In the example, the deferred commissions balance moves from $24,600 to $18,250 in the quarter, and every movement traces to a deal ID.
• Loopfour, the deterministic finance workflow automation platform, builds the schedule from CRM and commission records and posts the entry on fixed rules.

What does ASC 340-40 require for commissions?

ASC 340-40 requires an asset for the incremental costs of obtaining a contract with a customer, if the company expects to recover them (ASU 2014-09, 340-40-25-1). Incremental means the cost would not exist if the contract had not been obtained. For which costs pass that test, see our article on ASC 340-40 commission capitalization.

The rules that drive the schedule are short:

How long is the period of benefit?

The period of benefit is the initial contract term if renewal commissions are commensurate with the initial commission, and usually longer if they are not. PwC's revenue guide frames commensurate as commissions "reasonably proportional to the respective contract values," not judged by sales effort (PwC Viewpoint 11.4).

You do not have to use average customer life, but it is a common estimate. The FASB's Transition Resource Group staff said the standard does not require amortizing over the average customer term, while noting it can be a reasonable estimate (TRG memo 57). The same memo notes that the portfolio practical expedient in ASC 606-10-10-4 may let a company estimate the period at a portfolio level, depending on its facts.

Write the period down by segment and keep the analysis behind it. Your auditor will test the estimate, and the schedule needs one number per commission type.

The worked example: three deals from CRM to ERP

This example is hypothetical, and every figure is illustrative. A SaaS company sells 12-month subscriptions. Its commission plan and accounting policy are:

• New-logo commission: 10% of first-year annual contract value (ACV).
• Expansion (upsell) commission: 10% of incremental ACV.
• Renewal commission: 2% of renewal ACV. This is not commensurate with 10%.
• Period of benefit for new-logo and expansion commissions: 48 months, from a documented customer-life analysis for this segment, applied as a portfolio estimate.
• Amortization: straight-line from the month the related service starts, because the subscription is delivered evenly.

Step 1: Turn closed-won records into asset layers

Every commission that passes the incremental test becomes one layer with its own start month and monthly amount. The inputs come from the CRM opportunity and the commission calculation.

Monthly amortization is the commission divided by 48. Layer L4 is a separate asset, not an addition to L2. The expansion commission exists because a new expansion contract was signed, so it starts its own 48-month clock when the upsold service starts.

The entry when each commission is earned is the same for every layer:

Step 2: Record the early termination

On August 31, 2026, Deal 3's contract is terminated by agreement, with no further consideration due. Layer L3 has amortized for seven months (February to August), so $1,400 is gone and $8,200 remains. With no remaining consideration and no services left to transfer, the full $8,200 fails the impairment test in 340-40-35-3 and is expensed.

This is different from a customer that gives notice it will not renew. A non-renewal shortens the expected period of benefit, so the remaining balance is spread over the remaining contract months as a change in estimate (340-40-35-2). A termination leaves nothing to amortize over. If your plan claws the commission back from the rep, record the recovery under your policy; it does not reinstate the asset.

Step 3: Post the monthly amortization entry

The ERP receives one summarized entry each month, with the detail kept in the schedule by deal ID. In NetSuite, QuickBooks or Sage Intacct, a deal or customer dimension on each line keeps the entry traceable.

Each month: debit commission expense (amortization), credit deferred commissions, for the total in the bold row. Most companies present the expense within sales and marketing.

Want to see this schedule built from your own CRM and commission data? Book a workflow review.

Step 4: Roll the balance forward for the quarter

The quarterly rollforward explains every movement in the deferred commissions balance, and it must agree to the GL.

The closing balance should equal the remaining months times the monthly amount for every live layer. L1 has 39 months left (39 x $250 = $9,750). L2 has 41 (41 x $125 = $5,125). L4 has 45 (45 x $75 = $3,375). A schedule that passes this check and agrees to the GL is ready for review.

Step 5: Split current and noncurrent

The portion that will amortize in the next 12 months is current, and the rest is noncurrent. Every live layer has more than 12 months left, so the current portion is 12 months of each monthly amount.

What happens at renewal?

When Deal 1 renews on January 1, 2027, the 2% renewal commission ($2,400) relates only to the 12-month renewal term. Its amortization period is one year, so the practical expedient in 340-40-25-4 lets the company expense it as incurred. If the company does not use the expedient, the renewal commission amortizes at $200 a month through 2027. Layer L1 keeps amortizing on its original 48-month schedule either way.

How the data moves from CRM to ERP

The schedule is only as reliable as the fields it pulls, so map each one to a single source. A common error is a start date changed in one system and not the other.

Treat the service start date as the controlling field. A rep can close a deal in March for a service that starts in May. Amortization follows the service, not the close date. For how the revenue schedule for the same deal is built, see our guide to automating ASC 606 revenue recognition.

What do you disclose about capitalized commissions?

Public companies describe their judgments and amortization method, and disclose closing balances, amortization and impairment for the period. Private companies may elect out of those disclosures.

The quarterly rollforward in Step 4 produces every number in the second row. In the example, that is a $18,250 closing balance, $1,750 of amortization and an $8,200 impairment for the quarter.

Where Loopfour fits

Loopfour builds and runs the commission schedule as a fixed workflow between your CRM, commission data and ERP. The flow:

closed-won deal in Salesforce or HubSpot → commission record matched by deal ID → layer created with the policy's period of benefit → monthly entry posted to NetSuite, QuickBooks or Sage Intacct → rollforward and GL tie-out generated → terminations and date changes routed to the controller for approval in Slack

The same inputs produce the same entry every month, and each line carries the deal ID. Where a service start date exists only in a signed PDF, AI is used only to extract it, and anything below the confidence threshold goes to a person before a layer is created. We build it, run it and maintain it. More on the revenue side is in our revenue recognition hub, and the contract-to-invoice half of the same deal is in our Contract-to-Cash playbook.

Frequently asked questions

What does ASC 340-40 require for sales commissions?

ASC 340-40 requires a company to capitalize the incremental costs of obtaining a contract, such as a sales commission, if it expects to recover them. The asset is amortized on a systematic basis consistent with the transfer of the goods or services it relates to, which can include expected renewals.

How do you amortize a commission on an upsell?

A commission paid because an expansion contract was signed is a new incremental cost. Capitalize it as its own layer and amortize it over the period of benefit of the upsold services, starting when those services begin. The original deal's layer keeps amortizing on its own schedule.

What happens to deferred commissions when a customer churns early?

When a contract ends early and no further consideration is expected, the remaining carrying amount no longer has goods or services to relate to. Under the impairment test in ASC 340-40-35-3, it is expensed, and ASC 340-40-35-6 prohibits reversing that loss later.

Can we amortize commissions on a portfolio basis?

Often, yes. The FASB's Transition Resource Group staff noted that the portfolio practical expedient in ASC 606-10-10-4 may let a company estimate the amortization period at a portfolio level, depending on its facts. The result must not differ materially from applying the guidance contract by contract.

Are deferred commissions a current or noncurrent asset?

Usually both. The amount expected to be amortized in the next 12 months is commonly presented as current and the rest as noncurrent. A schedule built by deal and month gives the split directly.

What do we have to disclose about capitalized commissions?

Public companies disclose the judgments used to determine capitalized costs, the amortization method, closing balances by main category, and the amortization and impairment recognized in the period. Private companies may elect out of those disclosures under ASC 340-40-50-4.

Conclusion

ASC 340-40 is a short standard with a long tail: every closed-won deal becomes a layer that amortizes for years. Build the deferred commissions schedule from deal IDs, start each layer on the service start date, and tie the rollforward to the GL every quarter. Then upsells, renewals and early terminations are entries in the schedule, not surprises at year-end.

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Sources

• FASB: Accounting Standards Update 2014-09, including Subtopic 340-40
• PwC Viewpoint: Revenue guide, 11.4 Amortization and impairment
• PwC Viewpoint: TRG revenue memo 57, capitalization and amortization of incremental costs of obtaining a contract