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Funding a business
Principal and agent Business considerations
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[QUOTE="Yakub02, post: 308378, member: 94426"] [B]Principal versus agent considerations[/B] A person or company might act for another company. In this case the first company is said to be an agent of the second company and the second company is described as the principal. Principal An entity is a principal if it controls a promised good or service before it is transferred to a customer. However, an entity is not necessarily acting as a principal if it obtains legal title of a product just before legal title is transferred to a customer. A principal is responsible for satisfying a performance obligation. It may do this by itself or it may engage another party (for example, a subcontractor) to help do this. A principal recognises the gross amount of revenue to which it is entitled for goods and services transferred. Agent An agent’s performance obligation is to arrange for the provision of goods or services by another party (the principal). The agent is providing a selling service to the principal. The agent should not recognise the whole sale price of the goods but only the fee for selling them. When an agent satisfies a performance obligation, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the principal to provide its goods or services. An agent might sell goods for a principal and collect the cash from the sale. The agent then hands the cash to the principal after deducting an agency fee [/QUOTE]
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