Our company is on cash basis accounting and pays our Independent Contractors an advance on their commission each month. When receive the money from our customer the independent contractor earns the commission. The amount of the commission earned is deducted from the advance each month.
How should these transactions be categorized so that the advanced amount is reported on the 1099-NEC form for the Independent Contractor and reported as a Contractor expense for the company - AND - show the amount not earned as an recoverable asset on the BS?
For Tracking Purposes:
The monthly advance payment is categorized as a recoverable asset.
A bill is created for Commission earned (commission expense) and is paid (when earned) with a credit memo from the advanced commission account.
What happens is the Commission expense which is what is reported on the 1099 does not include the advanced payments although they are considered income to the Independent Contractor. The advanced payments made by our company that have not been earned are not being reported as a commission expense therefore not deductible for tax purposes.
What is the correct entry for this so that the advanced payments received by the Independant Contractor are reported on their 1099 AND the advanced payments paid out are reported as an expense for our company all the while tracking the amount of commission earned and amount that remains recoverable?
