Let’s say you have a contractor who regularly provides services to your company and she has requested an advance of $200 on her future services. Two weeks later she submits a request to be paid for $400 for services performed.
This post details how to process this scenario in Quickbooks Online . It will meet the following requirements:
- The advance is reflected as an asset — like accounts receivable — in the company’s books.
- The advance, once paid back in services, is counted towards reportable income to the contractor on their year-end 1099.
- The amount of the outstanding advance is visible to the company so when processing the re-payment they know how much is outstanding.
Set Up
- Holding Account: If you don’t already have one, create an Other Current Asset account named “Contractor Advances.” This account will hold the advance amount. When it’s paid back, this account balance should be 0 for that contractor.
- Custom Report: Create a Custom Report to display the balances by Vendor. Note: Your contractor is considered a Vendor in QB parlance.
- This gives you a way to see what balance is left when it comes time to pay the contractor for their services performed.
Pay Advance to Contractor
- Write a check to the Contractor.
- In the Category drop-down select the Contractor Advances account.
- In the amount enter the advance amount. In our scenario we’d enter $200.
Results:
- A $200 check is written to the contractor.
- The Contractor Advances Account has a $200 balance and displays on your Balance Sheet as an asset.
Contractor Provides Services Toward Advance
Two weeks later the contractor advises they’ve provided $400 in services.
Let’s assume you’ve forgotten how much you advanced them. To remind yourself, run the Advances to Contractors Report. It will show a $200 balance.
- Write a check to the Contractor.
- On the first line item, in the Category drop-down, select the account you use to report monies paid to contractors.
- In the Amount field enter 400.
- On the second line item, in the Category drop-down, select the Contractor Advances Account.
- In the Amount field enter -200.00. The net check is now $200.
Results:
- A $200 check is written to the contractor.
- $400 has been added to the contractor’s 1099 tracking account.
- The Contractor Advances Account balance is 0.