Dear accounting wizards,

Suppose I am running an ad exchange for digital advertising. Website publishers send me impressions, I sell those impressions to advertisers, give them a fixed share, and keep the rest. i.e. suppose a site sends me 1000 impressions, I sell them for $3, give the site $1, and keep $2. The question is, which counts as my revenue - the $3 that I gross, or the $2 that I net after the revenue share?

There are two points of view that I've come across discussing this with colleagues:

1) The revenue share is analogous to a sales commission - the site is bringing me the opportunity to make money, I convert it and give them a cut. Therefore my gross revenue is $3 and I have a selling expense of $1.

2) The money the advertiser is paying is immediately split up among multiple parties at the time of payment, so to count the full $3 as part of my revenue would be to count someone else's share as mine. Given that I'm contractually obligated to pay out a share immediately to the web publisher (the site), or, really, within a few weeks of receiving cash, that money was never "mine" and I can't count it as revenue.

Which is more correct? Does it depend on the particulars of the contract with the publishers (the websites)?

Many thanks,
Steve

Revenue is what is yours, so if part of what you collect has to be paid back out to somebody else then you cannot class that part as revenue of your own.