[eclarke]

We are a marketing and research firm. We use outside contractors to write and edit some of our reports. They sign a contract with us for a particular project, let's say for $10K. The project may take 2 weeks or 2-3 months. We don't know how long it will take and once they complete one phase, they submit a bill, for 1/2 or 1/3 or whatever is agreed upon. We record the invoice on the date that portion is completed by crediting accounts payable and debiting the expense-Contractor Expense. We then pay the invoice on the same day or a day or two afterwards, obviously crediting cash and debiting the payable. The expense remains as part of our P & L for the month. What is wrong with doing it this way and is there a more correct way to record this transaction?

[rehmanvohra]

The progress payments on contracts are not expenses, they are rather advance payments made in terms of agreement. The expense will be recognized when the job is complete. Till such time as the progress payments are made, debit adbances to contractors account instead of expenses.