Manager's Commission Before vs After Charging Commission

Manager’s commission looks like a small adjustment in final accounts, but it can quietly change the whole answer.

The confusion usually begins with two similar-looking lines:

• Manager is entitled to commission at 10 percent on net profit before charging such commission.
• Manager is entitled to commission at 10 percent on net profit after charging such commission.

Both lines are about the same manager. Both use the same rate. Both are connected with profit.

Still, the calculation is different.

The reason is simple. In the first case, you calculate commission on the full profit before deducting the commission. In the second case, the commission is calculated on the profit left after the commission itself has been deducted.

Once this difference is clear, manager’s commission becomes one of the neatest adjustments in final accounts.

What Is Manager’s Commission?

Manager’s commission is an amount paid to the manager as a reward, usually based on profit.

It is not the same as owner’s drawings. It is not an appropriation of profit. It is a business expense because the manager is an employee or a person appointed to run the business.

That means manager’s commission is charged against profit.

In final accounts, it is shown on the debit side of the Profit and Loss Account. If it remains unpaid at the end of the year, it is also shown as a liability in the Balance Sheet.

Item	Treatment
Nature	Expense
Account debited	Profit and Loss Account
If unpaid	Shown as outstanding commission or commission payable
Balance Sheet side	Liabilities

This post is about manager’s commission in final accounts.

Why The Wording Matters So Much

A final accounts question may give you the Trial Balance and adjustments. You prepare the Trading Account first, then the Profit and Loss Account, and finally the Balance Sheet.

Manager’s commission usually appears as an adjustment below the Trial Balance.

The question may say:

The manager is entitled to a commission of 10 percent on net profit before charging such commission.

Or it may say:

The manager is entitled to a commission of 10 percent on net profit after charging such commission.

The phrase “before charging” means the commission has not yet been deducted from profit.

The phrase “after charging” means the manager’s commission itself must be deducted first, and the commission is then based on the remaining profit.

That is why the second case needs a slightly different formula.

The Two Formulas At A Glance

Let:

• profit before manager’s commission = P
• rate of commission = R percent

Then use this table.

Wording in the question	Formula
Commission on profit before charging such commission	Commission = P x R / 100
Commission on profit after charging such commission	Commission = P x R / (100 + R)

This table is the heart of the topic.

The mistake many students make is using P x R / 100 in both cases. That gives the correct answer only for commission before charging such commission.

Why The After-Commission Formula Uses 100 Plus Rate

Suppose profit before manager’s commission is Rs. 88,000 and the manager gets 10 percent commission after charging such commission.

The commission is not 10 percent of Rs. 88,000.

Why?

Because Rs. 88,000 includes the commission also. After paying commission, the profit will become smaller. The manager’s 10 percent must be calculated on that smaller profit.

So we can think like this:

Profit before commission = Profit after commission + Commission

If commission is 10 percent of profit after commission, then profit after commission is like 100 parts and commission is like 10 parts.

Together, profit before commission becomes 110 parts.

So:

Commission = Profit before commission x 10 / 110

For Rs. 88,000:

Commission = Rs. 88,000 x 10 / 110
Commission = Rs. 8,000

Profit after commission:

Rs. 88,000 - Rs. 8,000 = Rs. 80,000

Now check the condition:

10 percent of Rs. 80,000 = Rs. 8,000

The condition is satisfied.

The Fast Three-Step Method

Use this method every time you see manager’s commission in final accounts.

Step	What to do
1	Find profit before manager’s commission from the Profit and Loss Account.
2	Read whether commission is before charging or after charging such commission.
3	Apply the correct formula and deduct the commission in the Profit and Loss Account.

Do not start with the formula before finding the correct profit figure.

The profit figure should be after all other Profit and Loss Account items, but before manager’s commission, unless the question clearly says something else.

Example 1: Commission Before Charging Such Commission

Profit before manager’s commission is Rs. 80,000.

The manager is entitled to commission at 10 percent on net profit before charging such commission.

Calculate the manager’s commission and final net profit.

Solution

Here, commission is calculated on profit before commission.

Manager's commission = Profit before commission x Rate / 100
Manager's commission = Rs. 80,000 x 10 / 100
Manager's commission = Rs. 8,000

Final net profit:

Net profit after commission = Rs. 80,000 - Rs. 8,000
Net profit after commission = Rs. 72,000

So the manager’s commission is Rs. 8,000 and the final net profit is Rs. 72,000.

Example 2: Commission After Charging Such Commission

Profit before manager’s commission is Rs. 88,000.

The manager is entitled to commission at 10 percent on net profit after charging such commission.

Calculate the manager’s commission and final net profit.

Solution

Here, commission is calculated on profit after commission.

Use the adjusted formula:

Manager's commission = Profit before commission x Rate / (100 + Rate)
Manager's commission = Rs. 88,000 x 10 / 110
Manager's commission = Rs. 8,000

Final net profit:

Net profit after commission = Rs. 88,000 - Rs. 8,000
Net profit after commission = Rs. 80,000

Check:

10 percent of Rs. 80,000 = Rs. 8,000

So the manager’s commission is Rs. 8,000 and the final net profit is Rs. 80,000.

Side-By-Side Difference

Take the same profit and same rate.

Profit before manager’s commission = Rs. 1,10,000

Rate of commission = 10 percent

Case	Calculation	Commission	Profit after commission
Before charging commission	Rs. 1,10,000 x 10 / 100	Rs. 11,000	Rs. 99,000
After charging commission	Rs. 1,10,000 x 10 / 110	Rs. 10,000	Rs. 1,00,000

Notice what happened.

The before-commission answer is higher because the commission is calculated on the full Rs. 1,10,000.

The after-commission answer is lower because the commission is calculated on the profit that remains after commission.

Example 3: Full Profit And Loss Account Adjustment

Suppose the Profit and Loss Account has these items before calculating manager’s commission.

Particulars	Rs.
Gross profit	1,20,000
Interest received	6,000
Salaries	20,000
Rent	10,000
Depreciation	8,000
Office expenses	4,000

The manager is entitled to commission at 5 percent on net profit after charging such commission.

Calculate manager’s commission.

Step 1: Find Profit Before Manager’s Commission

Start with incomes:

Gross profit + Interest received = Rs. 1,20,000 + Rs. 6,000
Total income = Rs. 1,26,000

Deduct other expenses:

Salaries + Rent + Depreciation + Office expenses
= Rs. 20,000 + Rs. 10,000 + Rs. 8,000 + Rs. 4,000
= Rs. 42,000

Profit before manager’s commission:

Rs. 1,26,000 - Rs. 42,000 = Rs. 84,000

Step 2: Apply The After-Commission Formula

Manager's commission = Rs. 84,000 x 5 / 105
Manager's commission = Rs. 4,000

Step 3: Find Net Profit After Commission

Net profit after commission = Rs. 84,000 - Rs. 4,000
Net profit after commission = Rs. 80,000

So the manager’s commission is Rs. 4,000.

How To Show Manager’s Commission In Final Accounts

After calculating the commission, you must show it in the accounts correctly.

Manager’s commission is debited to the Profit and Loss Account.

If the commission has not been paid by the end of the year, it is also shown on the liabilities side of the Balance Sheet.

Account	Treatment
Profit and Loss Account	Debit manager’s commission
Balance Sheet, if unpaid	Show as outstanding manager’s commission or commission payable

The Profit and Loss Account shows the expense.

The Balance Sheet shows the unpaid obligation.

Both are needed when the commission is outstanding.

Journal Entry For Manager’s Commission

When manager’s commission becomes due:

Manager's Commission A/c     Dr.
    To Manager's Commission Payable A/c

When the commission is paid:

Manager's Commission Payable A/c     Dr.
    To Cash/Bank A/c

At the end of the year, manager’s commission is transferred to Profit and Loss Account:

Profit and Loss A/c     Dr.
    To Manager's Commission A/c

In many final accounts questions, you may not be asked to pass separate journal entries. Still, knowing the entry helps you understand why it appears as an expense and as a liability when unpaid.

If The Commission Has Already Been Paid

Sometimes the Trial Balance may already include manager’s commission as an expense.

In that case, read the adjustment carefully.

If the Trial Balance already shows commission paid and the adjustment only asks for additional commission due, calculate only the missing amount and show the unpaid part as a liability.

If the question says the manager is entitled to total commission and some amount is already paid, compare the total commission with the paid amount.

Situation	What to do
No commission is recorded yet	Record the full calculated commission.
Part of commission is already paid	Record only the balance payable as outstanding.
Full commission is already paid	No outstanding liability is needed.

Before Charging Commission: A Clean Format

Use this format when the commission is on profit before charging such commission.

Profit before manager's commission = P
Rate = R percent

Manager's commission = P x R / 100
Profit after commission = P - Manager's commission

Solved Format

Profit before commission = Rs. 60,000

Rate = 5 percent before charging commission

Commission = Rs. 60,000 x 5 / 100
Commission = Rs. 3,000

Profit after commission = Rs. 60,000 - Rs. 3,000
Profit after commission = Rs. 57,000

After Charging Commission: A Clean Format

Use this format when the commission is on profit after charging such commission.

Profit before manager's commission = P
Rate = R percent

Manager's commission = P x R / (100 + R)
Profit after commission = P - Manager's commission

Solved Format

Profit before commission = Rs. 63,000

Rate = 5 percent after charging commission

Commission = Rs. 63,000 x 5 / 105
Commission = Rs. 3,000

Profit after commission = Rs. 63,000 - Rs. 3,000
Profit after commission = Rs. 60,000

Check:

5 percent of Rs. 60,000 = Rs. 3,000

The answer matches the condition.

What If The Question Only Says Commission On Net Profit?

If the question simply says “manager is entitled to commission on net profit” and does not say before or after charging such commission, follow the wording and format expected in your class material.

In many school-level final accounts questions, if no special phrase is given, students calculate commission on the profit available before the commission adjustment is made.

But do not guess when the question gives a clear phrase.

Wording	Safer reading
On net profit before charging commission	Use P x R / 100
On net profit after charging commission	Use P x R / (100 + R)
On net profit, with no extra phrase	Follow the question context and classroom convention

The exact phrase is your strongest clue.

Common Mistakes Students Make

Mistake 1: Using The Same Formula In Both Cases

This is the most common mistake.

Before charging commission and after charging commission cannot have the same formula because the profit base is different.

Mistake 2: Calculating Commission Before Other Expenses

Manager’s commission is usually calculated on net profit, not gross profit.

That means you should first adjust other Profit and Loss Account items such as salaries, rent, depreciation, bad debts, discount, interest, and office expenses.

Only then calculate manager’s commission.

Mistake 3: Forgetting To Deduct Commission After Calculating It

After you calculate manager’s commission, you must deduct it from profit.

If you calculate the commission but forget to debit it in the Profit and Loss Account, the net profit will be overstated.

Mistake 4: Not Showing Unpaid Commission In The Balance Sheet

If manager’s commission is due but unpaid, it becomes a liability.

Students often show it in the Profit and Loss Account but forget the Balance Sheet effect.

Mistake 5: Confusing Manager’s Commission With Commission Received

Manager’s commission is an expense.

Commission received is income.

They go on opposite sides of the Profit and Loss Account.

Item	Nature	Profit and Loss Account side
Manager’s commission	Expense	Debit
Commission received	Income	Credit

Mistake 6: Ignoring Rounding Instructions

Sometimes the calculation gives paise or decimals.

If the question gives a rounding instruction, follow it. If no instruction is given, write the amount clearly and round sensibly only if your teacher or textbook format expects whole rupees.

A Simple Memory Trick

Think of profit as a bowl of water.

Before charging commission means the manager’s share is measured from the full bowl.

After charging commission means the manager’s share is measured after the commission cup has already been taken out.

That is why the second calculation must shrink the base first.

Practice Questions

Try these before reading the answers.

Question 1

Profit before manager’s commission is Rs. 50,000. Manager’s commission is 10 percent on profit before charging such commission.

Find commission and profit after commission.

Answer

Commission = Rs. 50,000 x 10 / 100
Commission = Rs. 5,000

Profit after commission = Rs. 50,000 - Rs. 5,000
Profit after commission = Rs. 45,000

Question 2

Profit before manager’s commission is Rs. 55,000. Manager’s commission is 10 percent on profit after charging such commission.

Find commission and profit after commission.

Answer

Commission = Rs. 55,000 x 10 / 110
Commission = Rs. 5,000

Profit after commission = Rs. 55,000 - Rs. 5,000
Profit after commission = Rs. 50,000

Question 3

Profit before manager’s commission is Rs. 1,05,000. Manager’s commission is 5 percent on profit after charging such commission.

Find commission.

Answer

Commission = Rs. 1,05,000 x 5 / 105
Commission = Rs. 5,000

Question 4

Profit before manager’s commission is Rs. 72,000. Manager’s commission is 12.5 percent on profit before charging such commission.

Find commission.

Answer

Commission = Rs. 72,000 x 12.5 / 100
Commission = Rs. 9,000

Final Checklist Before You Write The Answer

Before finalising the answer, ask these questions:

Check	Why it matters
Did I calculate profit before manager’s commission correctly?	Wrong base gives wrong commission.
Did I identify before or after charging commission?	The formula changes.
Did I deduct commission from profit?	Commission is an expense.
Did I show unpaid commission as a liability?	Outstanding commission affects the Balance Sheet.
Did I avoid mixing it with commission received?	One is expense, the other is income.

If these five checks are correct, the answer is usually correct.

Frequently Asked Questions

Is manager’s commission an expense?

Yes. Manager’s commission is an expense for the business. It is debited to the Profit and Loss Account.

What is the formula for manager’s commission before charging such commission?

The formula is:

Commission = Profit before commission x Rate / 100

For example, if profit before commission is Rs. 80,000 and the rate is 10 percent, commission is Rs. 8,000.

What is the formula for manager’s commission after charging such commission?

The formula is:

Commission = Profit before commission x Rate / (100 + Rate)

For example, if profit before commission is Rs. 88,000 and the rate is 10 percent, commission is Rs. 8,000.

Why do we use 100 plus rate in the after-commission formula?

Because the given profit before commission includes both the final profit and the commission. If commission is 10 percent after charging commission, the final profit is treated as 100 parts and commission is 10 parts. Together, they make 110 parts.

Where is unpaid manager’s commission shown in the Balance Sheet?

Unpaid manager’s commission is shown on the liabilities side of the Balance Sheet as outstanding manager’s commission or commission payable.

Is manager’s commission calculated on gross profit or net profit?

It is usually calculated on net profit, unless the question specifically gives a different base. First prepare the Profit and Loss Account up to profit before manager’s commission, then calculate commission.

What is the difference between manager’s commission and commission received?

Manager’s commission is an expense paid or payable to the manager. Commission received is income earned by the business. Manager’s commission is debited to the Profit and Loss Account, while commission received is credited.

What should I do if the question does not say before or after charging commission?

Read the exact wording and follow the format expected in your class material. If no special phrase is given, many final accounts questions calculate it on the profit before the commission adjustment is made. But if the question clearly says “after charging such commission”, use the adjusted formula.