A Step-by-Step Guide to Properly Categorizing Split Payments for Subcontractor Services in QuickBooks Online

If you’re managing a small business in Canada and using QuickBooks Online (QBO), you may encounter situations where payments to subcontractors become a bit complicated, especially when dealing with Goods and Services Tax (GST). In this guide, we will discuss how to accurately categorize split payments to ensure proper Bookkeeping and compliance.

The Scenario

Imagine you receive an invoice from a subcontractor for $84.75, which breaks down to $75 for services rendered and $9.75 as GST. Now, suppose you accidentally pay them $75 first, forgetting the GST, and later send a separate payment of $10 to settle the tax portion. Your bank transactions now look like this:

• $75 (service payment)
• $10 (GST payment)

The challenge is to categorize these payments in QuickBooks Online so that:

1. The full $75 is recorded as an expense.
2. The $9.75 GST is classified correctly.
3. The extra $0.25 doesn’t cause discrepancies in your financial records.

Recommended Approach

To manage these payments effectively, consider the following steps:

Step 1: Create a Bill

Start by entering a bill in QuickBooks for the total invoice amount of $84.75. This will help you keep track of the entire cost in one place.

Step 2: Itemize the Bill

When inputting the bill, break it down into two line items:

• Services: Enter $75 for the contractor’s services.
• GST: Enter $9.75 specifically for the tax charged.

Step 3: Record Payments

Next, record the two payments against this bill:

1. When entering the $75 payment, ensure it is assigned to the service line item.
2. For the $10 payment, you can apply $9.75 to cover the GST, and then allocate the remaining $0.25 to the appropriate account (this could be an expense for miscellaneous costs or rounded off to zero).

Step 4: Review Your Accounts

After categorizing these transactions, verify that your expense accounts reflect the total amount spent on the subcontractor, and that the GST amount is recorded for tax purposes. This helps