Subcontractors Payable

Code: 2145
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Account Information

Financial Statement Statement of Financial Position
Normal Balance Credit

Definition

Amounts payable to subcontractors

Sub-accounts

2146

Subcontractor Invoices

2147

Subcontractor Retention

📐 IFRS vs US GAAP Accounting Treatment

IFRS IAS 37 Provisions, Contingent Liabilities and Assets
US GAAP ASC 420 Exit or Disposal Cost Obligations

❓ Frequently Asked Questions

Q: What is the Subcontractors account?

A: The Subcontractors account is a liability representing amounts owed to subcontractors who perform specific parts of construction contracts (e.g., electrical, plumbing, HVAC, painting work).

Q: How is a subcontractor invoice recorded?

A: A subcontractor invoice is recorded with the entry: Dr. Project Costs - Subcontractors (Expense), Dr. Input VAT (if applicable), Cr. Subcontractors (Liability).

Q: How is a subcontractor invoice with retention recorded?

A: Dr. Project Costs (invoice amount), Cr. Subcontractors Payable (total). Then withhold percentage: Dr. Subcontractors Payable, Cr. Subcontractor Retention.

Q: Is a percentage withheld from subcontractor payments?

A: Yes, in construction contracts, a percentage (e.g., 5-10%) is typically withheld from subcontractor payments as a performance guarantee (Retention). This amount is released after the agreed warranty period.

Q: When is the retention amount released to the subcontractor?

A: After the warranty period agreed in the contract (usually one year from completion), and after ensuring no defects.

Q: When is a subcontractor liability recorded?

A: The subcontractor liability is recorded when the service is received or work is completed, not when cash is paid, in accordance with the accrual basis of accounting.

Q: How are subcontractor claims (e.g., extra work) treated?

A: If approved, added to project cost and recorded as an additional invoice. If not approved, remains rejected or subject to negotiation.

Q: How is subcontractor payment recorded?

A: Subcontractor payment is recorded with the entry: Dr. Subcontractors, Cr. Bank Account (for the amount paid), and Cr. Subcontractor Retention (for any withheld amount).