May I have your professional advice as how to prepare a journal? Our GL showed that a contract expense in amount of $3M was paid. We draw the funds based on the incurred expenditures, and we booked a revenue $3M after drew. So the revenue and expense accounts are net to zero. Yesterday, we received actual incurred expenses from our subcontractor. My manager told us to prepare a journal entry to debit expenses and credit to against the accounts receivable. Because the $3 M was paid in advance and should be recorded to Accounts Receivable. However, we don’t know that $3M was paid in advance, all we can see is that AP department entered the expenses account when they paid. So we when record the draw we hit the revenue account. Now, the GL shows as follows:
| DR | CR |
Expense | $3M | |
Cash | $3M | |
Cash | $3M | |
Revenue | $3M |
As I explained above, we received $1M actual contract expenses from our subcontractor, and I told my manager we cannot credit to accounts receivable because we already booked a revenue account and the original entered expense must be removed from GL so as to avoid double entries to expense account. May I have your professional advice as how to prepare a journal to journalize the actual expenses we just received after we remove the original entered expenses that have been paid in advance. Can I make this entry:
| DR | CR |
Expense (to remove original entry from GL) | $3M | |
AR (To record the AR not expense) | $3M | |
Expense (Actual received expenses) | $1M | |
AR | $1M |
Will this journal entry affect the Revenue account? Thanks a lot for all your professional advice.
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