Receivables and Payables to same party

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Dascalargo 20 years ago

I posted this as a continuation of another thread I'd started on a different subject, but it didn't get any responses, so I thought I'd post it on its own. Any input would be appreciated.

I generally receive deposits ahead of time. I have set up a receivables account into which I enter these deposits. I then enter in that same account the invoice, post dated (using the actual end date of the project), and apply the deposit to it, thus allowing me to generate an unpaid invoices report.

So, I'm fine up until now.

Here's where I start to get confused: I have someone consulting with me on this job. The agreement is that he gets paid after the client pays me. I'd like to track the payables to this consultant along with the receivables due from the client.

What I've done is set up a payables account to him into which I enter a bill, post dated (to the same end date of the project), to a consulting category. When the payment comes in, I will effectively pay that bill.

Is there a way to combine the above entries? In other words, right now I enter information into my general receivables account to reflect the deposit and the invoce to the client, and then do a separate entry in the consultant's payables account to reflect what I owe him. I think what I'm doing is sound, even if it's not the best way to do it. I do this often, so it would be nice if I could do it in fewer steps.

Now, let's make it even more complicated: I also do work for this consultant. In other words, I have both payables to him and receivables from him. I use an account which tracks only his receivables (rather than the general receivables account) so I always have an at-a-glance total of how much he owes me. In general, I pay him more than I bill him.

Said consultant -- whose accounting practices are questionable at best

-- would rather I deduct my receivables from the payables, issue a check for the balance, and thus reduce the amount on the 1099 he'll eventually get from me. Is this sound accounting? If it's OK, how would I accomplish it in QB? If I make a transfer from the consultant's payables account into his receivables account, that amount will still be reflected on his 1099 and will show as income for me (since it's used to pay the receivables account).

OK, I've confused myself. If anyone can decipher that and point me in the right direction, I'd appreciate it.

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R. C. White 20 years ago

Hi, again, Dascalargo.

Well, I did draft a reply to your prior thread, but my computer balked - and then spontaneously rebooted - before I could send it. I didn't have time to redraft it at that time, and I was mad, frustrated and tired, too. I'll try again, but I probably won't be as eloquent this time.

Who pays his social security taxes?

That's not a trivial question. This kind of situation has spawned thousands of arguments between taxpayers and the IRS over several decades. You and he need to clarify and formalize your arrangement. Make it clear whether he is (a) your employee, or (b) your partner, or (c) your subcontractor. Not only payroll taxes, but other factors, such as liability insurance and workers' compensation coverage, depend on the actual relationship between you.

Assuming that he is, in fact, your subcontractor, then you should report the entire fee you receive from the client in "Fee Revenue", or some similar category. The amount that you pay him should be recorded as something like "Subcontractor Fee Expense". Similarly, any fees he pays you should also be recorded as fee revenue. Because of this dual relationship, you may want a separate category for fees from him, but your tax return would include both fee revenue categories, of course.

You should report your GROSS revenues. And you should report the entire fee paid to him. There's nothing inherently wrong with offsetting amounts owed to and from him. Just make sure that you report the full amounts. You can't control what he reports, but YOU are responsible for what YOU report.

At one point, you said you were using Quicken H&B; at another place you said QB. It doesn't really matter, but which is it? As you may know, there is a separate newsgroup at alt.comp.software.financial.quickbooks.

RC

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Dascalargo 20 years ago

RC-

The problem you had with the crash after typing a lengthy message just happened to me, so this is going to be the short version:

First, thanks for taking the time to write. I sincerely appreciate the help you have offered.

I am using Quicken Home and Business. I don't know why I typed QB. It's either a typo or a brain fart.

Thanks for the advice on this issue. For me, I see no difference. I just want to do things the right way, which is why I asked for feedback. For him, though, I believe he wanted me to have the 1099 reflect his net income-minus-expenses from me rather than the gross income. I am certain he does not keep track of what he pays me and does not deduct that as business expenses. Ultimately it's going to be his issue, not mine. I track every penny.

This guy is an independent contractor and will be 1099ed. I am not responsible for taxes and the like. He works in his own space.

Gonna hit POST now before I lose this copy of the message, too.

Thanks for your help.

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Receivables and Payables to same party

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