17 Nov Ask the Expert – Payments to Third Parties for Sub-Contracto
Ask the Expert – Payments to Third Parties for Sub-Contractor
Q – Based on the nature of the relationship that my client (a construction company) has with one of their independent contractors, the company permits the independent contractor to use their credit account with several suppliers. The company then pays the bills as they are due. When an invoice is received from the contractor, the amounts paid tot he supplier on the contractor’s behalf are deducted from the amount due. How is the best way to handle this situation?
A – Based on the on-going nature of this situation, the need to pay the third party suppliers, in addition to the desire to track all of the related costs for job costing purposes, a clearing account is the most straight forward approach. The process would work as follows:
1. A new clearing account should be created in the chart of accounts by choosing Lists > Chart of Accounts > Account > New. The type of the account is “Other Current Assets” and the name can be Contractor Clearing.
2. As bills are received from the suppliers, they are entered as normal bills. The vendor is the supplier, the account is Contractor Clearing, and the customer job is entered as appropriate.
3. The bills are then paid as usual. Note: this does not affect the clearing account at all.
4. If money is “advanced” to the contractor, a check is written with the coding in the account field as Contractor Clearing
5. As an invoice is received from the contractor, it is entered into the clearing account register. Be sure to click on the split or edit button at the bottom of the screen to permit job costing this amount..
6. Once the invoice has been entered, if any additional amount is due to the contractor, a check can be issued using step 4 above.
7. With the Contractor Clearing account open, a complete register can be printed showing all of the activity for purposes of reconciliation with the contractor. Choose File > Print Register> and choose the appropriate date range.