How to Record Subcontractor Termination Settlements
Recording the final settlement payment to a subcontractor following a Termination for Convenience (T4C) by the Prime.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Contract Termination Settlement Expense | Expense | 85,000.00 | - |
| Accounts Payable - Subcontractor | Liability | - | 85,000.00 |
💡 Accountant's Note
When a prime contractor terminates a sub for convenience, a settlement is negotiated. This cost is generally reimbursable by the government if the prime's contract was also terminated.
Practitioner & Systems Framework
💻 ERP Architecture
Post to a unique GL account for termination costs to ensure they are excluded from standard overhead base calculations if necessary.
⚠️ Audit Flags
Settlement amounts exceeding the remaining value of the subcontract or missing the settlement proposal audit.
📄 Required Documentation
Termination notice, subcontractor's settlement proposal, and the signed settlement agreement.
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