What expense account are subcontractors?

@Rasa-LilaM

Please learn from this input; you can Map a Liability account and even an Asset account for purposes of 1099 reporting. Example: The contractor works on Equipment you track as Fixed Asset or the Business Building = for purposes of 1099-Misc reporting, that is mapped to box 7. That labor is not Expense, but invested costs.

@Jalise

This is likely where you went wrong: "We received money from a funder and they requested we pay the independent contractor from the funds they gave us."

First, we know it isn't literally the same serial number dollar bill that you get, and then pay out. Next, you treat it as Income when that is Your Resource to spend. Any restriction on it makes it Restricted Income; not Liability. It would be Liability if you must use it as promised or Return it.

"In doing so, it was recorded as a liability instead of an expense."

That part is backwards; the Payment to the contractor is still expense or whatever applies. The Funds you were given, if they were in fact not yours to keep and use, but subject to being returned, means the Payment to the contractor still is whatever you paid for that they provided. Then, additional to that Spending, you were supposed to Relieve Liability to Income, to show you earned the right to Keep that funds, because you Spent them as promised.

What you did is Wash Away the grant entirely, which is wrong.

"The contractor received well over $600 last fiscal year, but because of how it was recorded, he didn't get a 1099."

And that is wrong, as well.

Let's review the options for proper accounting of these activities:

1. I get Grant Income, under Restriction, to use only on the Specific Purpose. That is my income when I got it, and my spending is associated with that Job (customer = grantor) and/or Class (program/purposes, such as Food Bank or Animal Rescue).

Or,

 2, I am awarded a Reimbursement Grant, so the Spending happens first, and then I apply to be reimbursed, which makes the Reimbursement my Grant Income.

Or,

3. I get a Restricted Grant that has the stipulation that Funds not Expended must be returned. That means it is more like a combination of 1 + 2. I treat the initial inflow as Liability. I track all spending and mark that this is Billable to the Grantor. I invoice the Grantor and then I use the Prepayment item on a Credit Memo to apply it to the invoice. The Invoice is creating the Income. There is not a Payment of new money against that invoice; the credit memo is how I show the Liability is reduced, and I am using the prepayment to clear the Invoice, to show I have the right to Keep the initial funds (reducing liability = the amount I need to repay just went down). I do that until I spent the grant in full, and the Liability from the prepayment of the grant is fully cleared to 0 liability on hand.

And for Every scenario, if I paid the subcontractor for goods or services, the entries are all the same as usual = really entered for what I am paying that person for doing or selling to me. Nothing about the Purchase is Liability. I spent funds; the earlier options control what I need to Treat the inflow of the funds as, in the first place.