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SnoKingRef
Level 1

Income vs Pass Through Funds - how to categorize

Question about how to categorize a line item. I have a few clients that I manage their contractor pay. I bill client for services performed by multiple contractors - they pay me - then I pay the contractors directly. This money is just a pass through - I invoice $35k then that $35k gets paid out to a number of contractors who performed services. I do charge a fee for this. I dont think that this money should be classified as income like I have been doing since it is just a pass through - how would I categorize this 'income' ??? Any ideas ...  

1 Comment
qbteachmt
Level 15

Income vs Pass Through Funds - how to categorize

What you are describing is not "pass through" but Gross Revenue and Gross Expense, unless you have a Trust Bank requirement.

 

Let's look at this example breaking down what you asked:

"I bill client for services performed by multiple contractors"

 

Who hired the contractors? If I contract with you to remodel your kitchen, and I hire all the subcontractors, and they work on your kitchen, this will be my subcontractor labor expense. I can charge that to you at no markup, and the charge to you is my Income. This is a two-sided Service item, such as Electrician and Painter, noninventory two sided products such a flooring and paint; and even other charges such as the building permit.

 

Or, I am a law firm with Trust requirements and I am not allowed to underwrite a lawsuit. So, the Services for what I incur are linked to Other Current Asset. This is called Advanced Costs. I list this for the payments of court filing fees and hiring expert witnesses and renting a business suite to hold depositions. All of this is Billable to you, at cost, but not my Expense and not my Income. It is "advanced" = I paid on your behalf. When I invoice you, you will "repay" the advanced costs that I marked as billable + I will list my Fee Income service item here.

 

"they pay me - then I pay the contractors directly."

 

You need to know if your operation is considered Income/Expense, Liability/Asset. No one on the internet knows your accounting needs. As a QB forum, we can help you do what you need, but you have to know that this is not an income/expense operation. Because most times, people assume it is not their income, and most times, it is their income.

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