Contra Revenue vs. COGS

Aug 10, 2010
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I am involved with a company that is starting from the ground up. The CFO came to me with a rough draft Chart of Accounts that is set up a bit differently than I am used to. We are paid by insurance companies to perform repairs. We pay subcontractors to complete the repairs. So we receive a check from the insurance company, and book it as repair revenue. When then turn around and pay the subcontractor their percentage of that check. And this is where it gets weird for me. We book the subcontractor payment to a contra revenue account called repair costs. I have actually never seen this done. My gut reaction was to suggest that the repair costs account be a cost of goods sold (or cost of revenue) account. The CFO explained that the payments to the sub contractor is meant to reduce net revenue, rather than gross profit. Is this GAAP? It seems to me that the numbers are being placed creatively in order to achieve a desired effect on the financial statements. Has anyone seen this type of set up before? Am I safe doing what the CFO asked me to do, or should I question his decision?:confused:


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