Glossary · Insurance agency commissions
Commission accrual
A commission accrual is commission an agency records as income when it is earned, typically when the policy transaction takes effect, before the carrier has paid it on a statement; the accrual is cleared when the payment arrives.
What it means
Agencies on cash accounting record commission when the check or deposit arrives; agencies on accrual accounting record it when it is earned. The IRS summarizes the accrual method in Publication 538: “Under an accrual method of accounting, you generally report income in the year it is earned and deduct or capitalize expenses in the year incurred.” Which method an agency uses is a question for its accountant; this page is not accounting advice.
How it works: at month end the agency books the commission it expects on the month’s new business, renewals and endorsements, often from its agency management system. When the carrier’s statement arrives, the payment is matched against the accrual. Anything left over is either still to come or a variance to chase; an estimate later corrected is a true-up.
How it shows on a commission statement
The statement is what clears the accrual. Lines for transactions already accrued reduce the open balance; lines for transactions you never accrued (late endorsements, audits) are new income or new chargebacks.
In reconciliation, and what Lapidar does
Lapidar does not keep your books and does not post accruals. What it gives you is the comparison behind them: for each policy with something due in the statement period, the commission expected from your book and schedule against what was paid, and a list of the differences. Your accountant decides how those figures go into the ledger.
Example
- Commission accrued for April, one carrier
- $4,320.00
- Paid on the May statement for April transactions
- $4,104.00
- Open after the statement
- $216.00
- Of which: renewal EX-85311 not paid (12% of $1,800.00)
- $216.00
Common mistakes to check
- Leaving old accruals open for months instead of chasing the payments behind them.
- Accruing commission at a rate that is not in the current schedule.
- Not reversing the accrual when a policy cancels before the carrier pays.
Questions
What is accrued commission?
Commission recorded as earned but not yet paid by the carrier.
Should an insurance agency use cash or accrual accounting?
That depends on the agency’s size, tax position and lenders. Ask your accountant; IRS Publication 538 explains the two methods.
How is an accrual cleared?
By matching it with the carrier’s payment. What remains open is either still to come or a discrepancy to raise.
Sources
- Internal Revenue Service, Publication 538, Accounting Periods and Methods. Retrieved October 14, 2026.
Lapidar is commission reconciliation software for independent insurance agencies, in its founding pilot. Related: commission receivable.