# ASC 940-20-05: Financial Services—Brokers and Dealers — Broker-Dealer Activities — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/940/20/#05-overview-and-background) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:dc154ed7e391aaad7a1535b9a3b2c668615a92686b48647c9516515ba94d0c97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 940-20-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/940/20/#05-overview-and-background) SEC content: no ##### [940-20-05-1](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:08b91369576f3e477edcc06538f700567cb4398ffef29cefc9150c114a0ed8f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic addresses certain activities engaged in by brokers and dealers in securities (broker-dealers). The guidance in this Subtopic is presented in the following three Subsections: 1. a General 2. b Clearing 3. c Underwriting. ##### [940-20-05-2](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:a2c8f8c151bf32ea447ab78f65af901d195039afba1c92da537585e9d373af28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The General Subsections provide guidance on matters such as commissions, [soft-dollar arrangements](https://asc.understandingaccounting.org/glossary/s/#soft-dollar-arrangements "An arrangement in which a broker-dealer provides research to a customer in return for trade order flow (a certain volume of trades) from that customer."), mutual fund distribution fees, agency transactions, and broker-dealer financial presentation. #### Commissions ##### [940-20-05-3](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:c58f21c4ec145ef5da4e2744621043bdf030818352b53c7710c91f6f6dc8c918 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Acting as an agent, a broker-dealer may buy and sell securities on behalf of its customers. In return for such services, the broker-dealer charges a commission. #### Soft-Dollar Arrangements ##### [940-20-05-4](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:a1a26881ad7bee4f8ae298fa4c352479113139e58bef756e55482f42fdc36437 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Soft-dollar arrangements generate commission income for the broker-dealer. Many of these soft-dollar arrangements are oral, and the value of the research to be provided is typically based on a percentage of commission income. Soft-dollar customers are typically institutional investors or money managers. Soft-dollar research may be generated either internally by the broker-dealer or purchased by the broker-dealer from a third party. #### Mutual Fund Distribution ##### [940-20-05-5](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:a7398de0d0248395c67366128e0557853299b454f8c244384af0c185fbcea216 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Broker-dealers may contract with one or more mutual funds to act as the registered distributor of the mutual fund's shares, assisting the fund in selling and distributing its shares. If a broker-dealer undertakes the responsibility for selling and distributing fund shares, it will incur different types of costs, the most common of which are commissions paid to those of its representatives who arrange fund sales. To compensate a broker-dealer for those selling efforts, mutual funds may establish some form of a fund-charge and shareholder-commission structure that provides fees to the broker-dealer either at the time of sale or over a specified period of time. Two common forms of compensation are the following: 1. a A front-end commission paid to the broker-dealer by the fund shareholder at the time of sale 2. b A 12b-1 distribution fee, which is paid by the fund over a period of time based on a percentage of the fund's daily net asset levels, together with a deferred sales charge, which is a commission paid to the broker-dealer by the shareholder at the time the shareholder exits the fund. Deferred sales charges are often charged to the shareholder in decreasing amounts over time. ### Clearing ##### [940-20-05-6](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:68b8d60d9e5df430ddc2dba9d705f50826f49b8a9e0b15b85a4e5e1db49adafa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Clearing Subsections provide guidance for a broker-dealer's clearing operations. #### Dividend Department ##### [940-20-05-7](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:7ea3ea2515b07a19741bc450c72a220ea14813b7d63eb3eb0bc7843879a8cf09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The dividend department maintains a record of securities that the broker-dealer fails to receive or deliver on the record date. Securities received or delivered against fails that were open on the record date and that are in the name of the delivering broker should be accompanied by due bills. A due bill is an official authorization allowing the purchasing broker-dealer to make a legal claim on the selling broker-dealer for a future distribution to which it is entitled. For cash dividends or interest payments, this typically takes the form of a postdated check. It is usually the responsibility of the dividend department to collect or authorize payments for transactions of this nature. #### Suspense Accounts ##### [940-20-05-8](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-8) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:30df3060a858fae8de4783b69e7610877e2783a017b8ea1c7457a63099745337 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because of the number of transactions that take place when trades are cleared for the broker-dealer or its customers, unreconciled differences and trading errors occur. A broker-dealer often has several suspense accounts to facilitate the resolution and identification of differences. ### Underwriting ##### [940-20-05-9](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-9) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:678a72d130ce46e922bcba8095d51bc7713bb73cc07298ae8ca0b1efb72fb9be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Underwriting Subsections provide guidance for a broker-dealer's underwriting activities. ##### [940-20-05-10](https://asc.understandingaccounting.org/asc/940/20/#940-20-05-10) Pending content: no Source downloaded (UTC): 2026-09-10T02:13:31.954Z to 2026-09-10T02:13:31.954Z Record version: sha256:781cdfcad73ab909675e116d9bd8847275df7251a696f63d27c282209c37a845 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are several different ways in which a broker-dealer may participate in the underwriting of a new issue of securities. The broker-dealer may be the managing or lead underwriter, a member of the syndicate, or a member of the selling group. Such participation may be on any of the following bases: 1. a Firm commitment 2. b Standby 3. c Best efforts 4. d All or none.