When a company sells through a marketplace, reseller, distributor, travel portal or another intermediary, the accounting question is not simply who raises the invoice or collects the cash. Under Ind AS 115, the key question is whether the entity controls the specified good or service before it is transferred to the customer. That conclusion determines whether revenue is shown gross as a principal or net as an agent.
This distinction can materially change reported revenue even where the economic margin is similar. ICAI’s Educational Material on Ind AS 115 explains the Standard’s core principle of depicting transfer of promised goods or services for the consideration to which the entity expects to be entitled. ICAI’s 2025-26 Compendium of Indian Accounting Standards includes Ind AS 115 in the current Volume I.
Principal vs agent: the core difference
A principal promises to provide the specified good or service itself and controls it before transfer to the customer. It therefore recognises revenue on a gross basis for the consideration to which it expects to be entitled, with the third-party cost recorded separately where applicable.
An agent does not control the specified good or service before the customer receives it. Its promise is to arrange for another party to provide that good or service, so revenue is generally the fee, commission or other net amount retained for arranging the supply.
Step 1: identify the specified good or service
Define exactly what has been promised to the customer before deciding principal or agent. A platform may be an agent for the underlying product but a principal for a separate delivery or support service. The assessment should therefore be performed for each relevant specified good or service instead of assigning one label to the entire contract.
Step 2: ask whether another party is involved
The difficult cases arise when a supplier, manufacturer, hotel, airline, restaurant, contractor or other third party participates in fulfilling the customer promise. The contract and operating model should show what each party is actually responsible for.
Step 3: test control before transfer
The decisive issue is control before transfer, not legal form alone. Temporary legal title, invoicing the customer, collecting the full consideration or appearing as the customer-facing brand does not automatically make the entity a principal.
Indicators commonly used to support the control assessment include primary responsibility for fulfilment, inventory risk and pricing discretion. They are evidence, not a mechanical scoring checklist. BDO India’s Ind AS 115 principal-versus-agent technical note also explains this control-first approach for modern platform and intermediary models.
Primary responsibility for fulfilment
Ask who is ultimately responsible for providing an acceptable product or service. Responsibility for performance, quality, replacement or fulfilment failures can support a principal conclusion. If another supplier remains responsible for the core product or service and the entity mainly facilitates the transaction, that points toward an agent role.
Inventory risk
Ask who bears the risk that goods remain unsold, become obsolete, are damaged or are returned. A retailer that purchases inventory before identifying a customer and bears the loss if it cannot sell the goods has a stronger principal indicator than a marketplace that can return unsold goods without material exposure. For services, similar risk may appear as capacity or purchase commitments.
Pricing discretion
Ask whether the entity can meaningfully determine the selling price. Genuine pricing discretion can support control, while a fixed supplier price with a predetermined commission can support an agent conclusion. Pricing is not decisive by itself.
Worked example: reseller versus marketplace
Assume Company A buys electronic devices from a manufacturer for ₹8,000 each, takes them into its own inventory, bears damage and obsolescence risk, chooses the selling price and handles customer returns. It sells a device for ₹10,000. On these simplified facts, Company A has strong evidence that it controls the device before transfer and is acting as principal. It would generally present ₹10,000 as revenue and ₹8,000 as the related cost of goods sold.
Now assume Company B operates an online marketplace. The manufacturer retains unsold-inventory risk, sets the selling price, remains responsible for product quality and returns, and Company B earns a 10% commission for arranging the sale. If a customer pays ₹10,000 through the platform and Company B retains ₹1,000, the facts point toward an agent relationship for the underlying product. Company B would generally recognise the ₹1,000 commission as revenue rather than the full customer payment.
Real arrangements may contain fulfilment services, customer guarantees, rebates, returns, platform-funded discounts or separate performance obligations, so each material promise should be assessed on its own facts.
Why invoicing and cash collection can mislead
A common mistake is to conclude that the party issuing the invoice must be the principal, or that the party receiving the full customer payment must record the full amount as revenue. Billing and cash routing can be administrative. The accounting conclusion should follow the substance of the promise and control of the specified good or service before transfer.
Practical month-end and year-end checklist
- Map material revenue streams: identify arrangements involving third-party fulfilment, marketplaces, resellers, subcontractors, aggregators and referral models.
- Define the specified good or service: separate materially different promises before applying the test.
- Document control: record who controls the good or service before transfer and why.
- Assess supporting indicators: review fulfilment responsibility, inventory or capacity risk and pricing discretion.
- Retain evidence: preserve supplier agreements, customer terms, return policies, pricing rules and settlement statements.
- Reconcile cash to revenue: where the entity is an agent, explain why amounts collected for another party are not all revenue.
- Reassess changed contracts: revised return rights, pricing authority or inventory commitments can change the conclusion.
- Check presentation: ensure revenue, costs, payables and settlement accounts reflect the documented conclusion.
Common mistakes to avoid
- Using invoice ownership as a substitute for the control assessment.
- Assuming that collecting 100% of customer cash means 100% is revenue.
- Treating the indicators as a points-based test.
- Applying one conclusion to a contract containing several distinct goods or services.
- Ignoring changes in return rights, inventory commitments or supplier obligations.
Practical takeaway
For Ind AS 115, start with the promise to the customer and ask who controls the specified good or service before transfer. If the entity controls it, it is generally the principal and revenue is presented gross. If it merely arranges for another party to provide it, it is generally the agent and revenue is limited to its fee or commission. A strong accounting file documents the promise, control analysis, supporting indicators and the reconciliation from customer collections to reported revenue.
