Scenario 2 is possibly incorrect.  In your scenario, you claim you have paid a retainer in 2019, then the attorney incurs work for only $2,000 in 2020...typically, this goes against your retainer.   So...if you expensed the $5,000 retainer is "legal and professional fees" in 2019 and Sent the 1099 for 5k...in 2020, you will get a bill for $2,000...but you likely would never pay it....on your end...this would go against the account payable for the attorney, which would have a negative beginning balance of $5k....as it is a pre-payment....the attorney still owes you a 3K refund...OR 3K in future work.   If you did not actually write another check in 2020 for the 2K...you do NOT issue another 1099 in 2020.   However, if you did in fact get the 5K refunded to you...you would book that as debit to cash, credit to the same g/l account you used when you paid it out.  Next, your 2K payment, should be Legal Expense debit, credit to cash and yes...in this case you would issue another 1099 in 2020 ... View more