Service Company Payment to CoProviders for Joint Work. What is the best approach?

[DCDB]

This question relates to a small consulting firm (Consultant) that works jointly on assignments projects in partnership with other providers (Co-Providers). Depending on the agreed arrangement, the consulting firm may be responsible for billing the customer then paying the collaboration partner(s) their share of the revenue. How should such a transaction be recorded? Is either of the following approaches acceptable? Is it OK for the Co-Provider to be listed as “vendor” in the system in both cases?
Approach 1:

• Consultant invoices the Customer for the full amount (recording it in the system as a “consulting revenue” receivable).
• Co-Provider bills Consultant for its share. Consultant records bill as payable to a vendor (or should the Co-Provider be treated otherwise?)
• Consultant receives payment from Customer and pays Co-Provider while debiting a designated Cost of Service account.
• In this case, the entire amount is initially recorded as revenue to the Consultant then cost of service is deducted to adjust the revenue down.

Approach 2:

• Consultant invoices the Customer for the full amount (recording its share in the system as a “consulting revenue” receivable while linking the Co-Provider receivable portion to a designated asset account).
• Co-Provider bills Consultant for its share. Consultant records bill as payable to a vendor (or should the Co-Provider be treated otherwise?)
• Consultant receives payment from the Customer, allocating its share to Consulting Revenue and the Co-Provider’s share to the asset account.
• The Consultant pays Co-Provider from the designated asset account.
• The intended result in this case, the Consultant only recognizes payment for its own work as revenue while being able to match the received funds with outgoing payments.

If there is a more appropriate approach, please advice.

Thank you.

 

[Bert82]

I'd say both approaches were possible. For myself would prefer approach 1.

What is the intention of the Consultant that he won't have that total revenue and co-providers costs in his books (approach 2)?

Is it OK for the Co-Provider to be listed as "vendor" in the system in both cases?

I don't see a problem there. The Co-Provider gets his money from the consultant, so from Consultant's point of view the Co-Provider is a creditor/supplier/vendor/acc.pay.