There’s nothing wrong with using subcontractors when providing service for a customer – whether it’s because you don’t have all the skills, materials or simply lack the time. As I’ve said before, be the reasons what they are, it’s all about proper accounting treatment. For almost all the transactions out there there’s an accounting treatment or even treatments.

So when you’re using subcontractors for your service, you must keep in mind two things: you’re providing service for the customer and subcontractor’s work is part of your service you’re delivering. 

When measuring your expenses, the invoices or work done by the subcontractor is your expense. As such, the service they provide, either it’s some form of materials, goods or know-how, it’s part of the product you’re selling at the end of the day, part of what gets you your revenue at the end of the day.

So when you’re measuring your stage of completion or how much you’ve prepared from the end-product, always consider subcontractor’s work also as a part of what’s already done and more so what still needs to be done. Subcontractor’s work should be considered when measuring the revenue for the period (remember that stage of completion method means that revenue is recognized based on service delivered or product produced as a percentage from the complete version and not by any means with invoices; you’re recognizing revenue based on how much of the service, goods or project you’ve delivered or prepared and not based on how many invoices you’ve submitted).

Do think twice before recognizing subcontractor’s invoices on prepaid future expenses accounts – have you actually received the service and are simply accounting it as a prepaid expense simply because you cannot send an invoice to your client? You’re doing it all wrong then.