Who is the subcontractor ?

The subcontractor is the person who is authorized by the construction company to accomplish work on its projects for a certain contractual sum. 

As a construction company we start a building project and the deal is to finish it completely from the foundation digging to the finishing and handing over the keys .

It is common to hire some people to carry out some work such as digging . paintings , electricity and others and we call them subcontractors .

What is an invoice ?

When we contract with the subcontractor and he starts his work , he has to present a report of his accomplishments over certain  periods in order to get his money . Namely  if he is authorized to finish eclectic fixtures during this month , he will have to present a report at the end of the month to state that the work is completely  done or just 80 % of it . Then the engineers check the validity of the report and  he receives his money after deductions as business insurance , which is deducted till he finishes the whole work and then we return it back  , also there is deduction at source tax which is deducted and paid to the tax authority and social insurance and other deductions .

  So we can say that the subcontractor is like the supplier and the presented report is the bill we have to pay . Consequently the professional accountant list the entries and clarify the accrual and payments of subcontractors accurately.

Correct accounting entries 

Assume that the contractor presented an invoice of 100000 L.E. and the engineering management approved it , so the correct accounting entry must follow two steps .

First : accrual recording 

100000     from   A / expenses of a residential building project .

                 To       

  500                   A/  tax authority current account 

 5000                 A / business insurance ( deducted and returned back at the end    

                         of the work )                                 

 5000             A/  social insurance current account 

89500            A / contractor’s

Second step : payment 

From        89500            A / contractor

To             89500           A  / bank or cash   

This way we could list  the accounting entry for a subcontractor’s invoice .