The Profit and Loss report in QuickBooks Desktop groups transactions by expense account, not by vendor type. That's what's driving this: the "Subcontractors" line on the P&L is the name of an expense account in your chart of accounts, and any transaction posted to that account will show up on that line, regardless of the vendor's type setting.
This also explains the inconsistency between Lee Supply and ABC Supply. Even if both vendors are set up with the same vendor type ("Materials") and the same tax settings, what matters is which expense account appears on each individual bill or check. If some of Lee Supply's bills were coded to the "Subcontractors" expense account, perhaps by accident, or because an item on the bill was linked to that account, those transactions will show up on the Subcontractors line. ABC Supply's transactions may have been coded correctly to a Materials or Supplies account from the start.
How to find which transactions are driving the issue
- In QuickBooks Desktop, go to Reports, then Company & Financial, then Profit & Loss Detail.
- Find the Subcontractors section and look at the individual transactions listed there.
- Double-click any transaction from a vendor who shouldn't be on this line to open it.
- Look at the Account column on the bill or expense line. If it shows "Subcontractors," that's why it's appearing here.
How to fix incorrect transactions
Once you've identified transactions coded to the wrong expense account:
- Open the transaction (bill, check, or credit card charge).
- In the expense line, click the Account column and change it to the correct expense account, for example, "Materials," "Supplies," or whichever account fits your chart of accounts.
- Save and close the transaction. The P&L will update immediately.
Repeat for each transaction that needs to be recoded. Once they're all updated, those vendors will no longer appear under the Subcontractors line.
Preventing this going forward
To make sure future purchases from material vendors are coded correctly:
- When entering bills, always confirm the account on each line before saving. The account field drives what appears on the P&L, not the vendor's type or any other vendor setting.
- If certain items (like service items linked to a vendor) are pulling the wrong expense account, check the item setup. In QuickBooks Desktop, go to Lists, then Item List, open the item, and review which Expense Account it is linked to. Changing it there will affect future transactions using that item.
For more on how expense accounts and the chart of accounts work in QuickBooks Desktop, see: Understand chart of accounts in QuickBooks Desktop.
Got more questions about getting the P&L set up correctly for the insurance audit? Happy to help work through it.
