Traveller's commission

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Disha agrawal (Querist)
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27 October 2013 what is the literal meaning of travellers commission n why will it be distributed in case of pre n post incorporation in sales ratio?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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02 August 2025 Great question! Let me explain both parts clearly:

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### 1. Literal Meaning of **Traveller's Commission**

* **Traveller's Commission** generally refers to the **commission earned by a traveller or a traveling agent** who facilitates sales or business on behalf of a company.
* In traditional business setups, a "traveller" is a **sales representative or agent** who travels to meet customers, promote products, and secure orders.
* The **commission** is a percentage of the sales value or profit paid to this traveller as a reward for bringing business.

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### 2. Why is Traveller's Commission Distributed in Case of Pre and Post Incorporation?

When a company is formed (incorporated), the period before incorporation (pre-incorporation) and after incorporation (post-incorporation) are treated differently for accounting and taxation.

* **Pre-incorporation period:** Time before the company legally exists. Any business done, expenses incurred, or commissions earned during this period technically belong to the promoters or individuals, not the company.

* **Post-incorporation period:** Time after the company legally exists, when the company undertakes business officially.

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**Why distribute Traveller’s commission between pre and post incorporation in sales ratio?**

* If a traveller earns commission spanning both periods, it must be fairly **apportioned** or **allocated** between the pre-incorporation period and post-incorporation period.
* This ensures that:

* Commission related to business done **before the company existed** is borne by promoters (or reflected as pre-incorporation expenses).
* Commission related to business done **after incorporation** is borne by the company.
* The **sales ratio method** means the commission is divided proportionally to sales achieved in each period (pre and post incorporation). For example:

* If 40% sales happened pre-incorporation and 60% post-incorporation, commission is allocated 40:60 respectively.
* This is important for:

* Accurate financial reporting
* Fair taxation and expense recognition
* Avoiding disputes between promoters and company

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### Summary:

| Term | Explanation |
| -------------------------- | --------------------------------------------------------------------- |
| Traveller's Commission | Commission paid to sales agent or traveller who brings business |
| Distribution of Commission | Allocating commission between pre/post incorporation periods |
| Why distribution? | To fairly match expenses with respective business periods and parties |
| How distributed? | Usually based on proportion of sales in each period (sales ratio) |

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If you want, I can help you with a simple working example or journal entries related to this! Would you like that?

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