Prepayment to Vendor and 1099 Question

haskenazi1 · ‎February 04, 2019

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.

Malcolm Ziman · ‎February 04, 2019

I don't think that the 1099 process looks at journal entries. I think it just looks at payments made with the appropriate forms: Expenses, Checks or Bill Payments, and only if the Payment Type meets the criteria, i.e not using a c/card or 3rd party like Paypal.

"other current asset" and "prepaid expenses" would have to be selected as accounts to include in the 1099 screen.

haskenazi1 · ‎March 08, 2019

I confirmed that the 1099 report did in fact take the journal entries as payments bc they were used to pay the bills. So QB sees the JEs as a Bill Payment.

Clearly since our reconciliation is correct, the JEs dont affect the bank register, but they do get counted as payments. Seems wrong to me but I have to assume it is not

JonpriL · ‎March 08, 2019

You're absolutely correct, @haskenazi1!

Creating a journal entry as a payment for your bill is included when reporting your 1099 payments.

In addition, here's an article you can read to learn more about 1099s: Common Questions About 1099s.

Feel free to leave a comment below if you have any other concerns your 1099s, I'll be always around to help.

jennazwan · ‎January 28, 2020

Did you ever get an answer to this question? I still can't figure out how to include the actual amount we paid the vendor. The 1099 wizard is only pulling the amount that was "worked off".

If I include the prepaid account, the 1099 wizard zeros out the Box 7: Nonemployee Compensation box.

GlinetteC · ‎January 28, 2020

Good to have you here, jennazwan.

Let me provide you information about the 1099 reporting in QuickBooks Online.

In reporting 1099, only those vendors who paid via cash and checks are reported. Those payments made by credit, debit, or gift card, and payment networks like PayPal are excluded.

Also, in 1099 mapping, let's ensure that the expense accounts are mapped correctly. Mark checked the parent account and the sub accounts for box 7.

You can refer to this article for more information: Common questions about 1099s.

Drop by the Community anytime you need help with year-end tax in QuickBooks.

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Prepayment to Vendor and 1099 Question