USA Accounting for subcontractors


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I have a client who uses subcontractors. I know the whole principal is to match the revenue to the expense.

Problem #1

The client received an engineer project. They are too busy to do the task themselves so they find a third party (subcontractor) to help out.

The client did not bill for services yet and has not recorded any revenue. However, the subcontractor bills my client. How would you account for this "expense" when it does not correlate to any revenue yet.

Should I capture this amount as a work in process revenue and post the corresponding expense?


Problem #2

The client also uses subcontractors as part of their fee. My client gives a proposal for their fee (let's say $10,000) and adds a separate line item for a subcontractor (let's say $3,500). My client bills prior to receiving the bill from the subcontractor.

The client has $10,000 in revenue for their own services and $3,500 in revenue for subcontractor without a corresponding invoice for the expense of the subcontractor. Should this $3,500 be accrued as an expense and reversed when the invoice is received?

What if my client wanted to add 10% markup for this. Let's say they billed $3,850 and is expecting a bill for $3,500. Would they need to accrue a $3,500 expense and record the markup ($350) at the point of billing and services provided?


Any clarification or help on this topic would be EXTREMELY helpful. I very much appreciate any and all advice on these problems.
 
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kirby

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As to Problem 2:
"Should this $3,500 be accrued as an expense and reversed when the invoice is received? "
Yes.

As for the markup, Once your client bills $3,850 the $350 markup has already been recorded.
 

kirby

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As to #1
"Should I capture this amount as a work in process revenue and post the corresponding expense?"
Yes
 
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Say I receive the invoice from the subcontractor before my client bills their client.

I shouldn't record this as an expense since i do not have any revenue for this.

Or post the expense and accrue the revenue through work in process?
 
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kirby

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Yes, post expense and accrue revenue including markup. Then be sure to REVERSE your accruals immediately as of first day of next month and REMIND client they need to record the actual invoice.
 

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