Prepayment to Vendor and 1099 Question

We prepay 2 vendors for services not yet rendered. 

In QB, our bookkeepers used an "other current asset" account for 1 of the vendors, and a "prepaid expenses" account for the other. As the vendor "works off" his liability, we reduce the amount in those prepaid accounts.

Question 1: Which of the 2 accounts is best to use? Does it matter?

Question 2: I see when running the 1099 report, that QBO is not using the amount we actually paid when we prepaid, rather the amount "worked off". For 1099s I believe this is incorrect as they are cash basis and should only show the money we actually paid him. Assuming I'm right that the 1099 is not correct, what is the best way to accurately reflect the situation in the books but also have the 1099 populate correctly?

Some additional context:

To reduce the prepaid account and also accurately reflect our COGS account after each job is worked off, our bookkeepers have used 2 diff methods.

1)Journal Entries to show the amount he worked off for a given job and applied as payment to the bill

2) Bill with 2 category lines - a) prepaid account with negative amount, and COGS acct with positive offsetting amount. No payment to this bill. 

See attached screenshot of both scenarios. 

Thanks so much in advance for any help trying to figure this out.