I need to record a payment as a retainer

@Diane18 hi, thanks for reaching out to the community, we are always here to help. I understand how important recordkeeping is to the effective operation a business and is more than happy to assist you. 

If you accept upfront deposits or retainers for products or services, there are several steps you need to take to account for that money. In this article, we walk you through those steps — from setting up a liability account to managing a cancelled job.

Step 1: Set up an account for upfront deposits or retainers

Before you can accept upfront deposits or retainers, you need to set up a current liability account for them. This is because upfront deposits and retainers are liabilities, not income, even though you deposit the money into your bank account.

To create a liability account:

1. From the Lists menu, select Chart of Accounts.
2. In the Chart of Accounts window, right-click and select New from the pop-up menu.
3. Select Other Current Liability as the account Type.
4. Enter a name for the account (for example, Upfront Deposit) in the Name field.
   Note: You should set up the account with a zero opening balance unless you are tracking existing upfront deposits or retainers.
5. Select Ok.

Once the account is created, you need to create an item to use when recording upfront deposits or retainers.

Step 2: Create an upfront deposit item

To accept upfront deposits or retainers, you need to set up an item to use when you record the associated transactions.

This item is linked to the liability account you just set up to properly record upfront deposits.

To create an item, follow these steps:

1. From the Lists menu, select Item List.
2. In the Item List window, right-click and select New from the pop-up menu.
3. From the Type drop-down menu, select the purpose of the deposits you collect.
   You can select Service if you collect upfront deposits for services, or Other Charge if you collect upfront deposits for products.
4. Enter a name for the item (for example Upfront Deposit) in the Item Name/Number field.
5. Select the Upfront Deposit liability account you created from the Account drop-down list.
6. Select Ok.

You can now use this item to record upfront deposits or retainers you accept.

Step 3: Record upfront deposits or retainers you receive

When you receive an upfront deposit or retainer from a customer, you need to record it.

1. From the Customers menu, select Enter Sales Receipts.
2. From the Customer:Job drop-down list, select the customer or job.
3. If the Deposit To field appears, select the account into which to deposit the funds.
   If this field does not appear, the funds are identified as Undeposited Funds and can be deposited at a later point.
4. Select the Payment method.
5. Enter relevant information, such as the Date and Sale No, in the appropriate fields.
6. In the Detail section, select the Upfront Deposit item you created from the Item drop-down list.
7. In the Amount field, enter the amount of the deposit or retainer.
8. Select Save and Close.

The deposit or retainer is recorded as a liability.

Step 4: Create invoices

When you receive a retainer or an upfront deposit for a product or service, you need to create an invoice for the product or service.

To create an invoice:

1. From the Customers menu, select Create Invoices.
2. From the Customer:Job drop-down list, select the customer or job.
3. Enter relevant information such as the Date, Invoice #, Bill to/Sold to, and Terms in the appropriate fields on the form.
4. In the Detail section, select the items (products or services) to include in the sale.
5. Select Save and Close.

Step 5: Apply upfront deposits or retainers to invoices

When you provide the product or service for which you accepted an upfront deposit or retainer, and it's time to collect payment, you can apply the upfront deposit or retainer as payment on the invoice. This moves the deposit from the liability account to your income account.

There are two ways to do this:

• Enter the upfront deposit or retainer as a line item on the invoice
• Apply the upfront deposit or retainer as a credit

The following sections provide the steps for each method. Select the method that works best for your business.

Option A: Enter upfront deposits or retainers as line items

When you apply an upfront deposit or retainer to a customer's invoice, you can enter it as a line item on the invoice, reducing the total of the invoice by the amount of the deposit.

To enter an upfront deposit or retainer as a line item on an invoice:

1. Open the customer invoice.
2. In the Detail section, on the next available line, select the Upfront Deposit item you created from the Item drop-down list.
3. Enter the amount of deposit to be applied to the invoice in the Amount column.
4. Select Save and Close.

The deposit is entered on the invoice and reduces the amount due.

When the deposit applied is for the full amount of the invoice, the transaction is marked as paid.

Option B: Apply upfront deposits or retainers as credits

When you apply an upfront deposit or retainer to a customer's invoice, you can enter the amount as a credit to pay the invoice.

To apply an upfront deposit or retainer to an invoice as a credit:

1. From the Customers menu, select Create Credit Memos/Refunds.
2. From the Customer: Job drop-down list, select the customer or job.
3. In the Detail section, select the Upfront Deposit item you created from the Item drop-down list.
4. In the Amount field, enter the amount of the deposit or retainer.
5. Select Save and Close.
6. In the Available Credit pop-up dialog that appears, select Apply to an invoice and select OK.
7. In the Apply Credit to Invoice dialog that appears, select the invoice to which to apply the upfront deposit or retainer and select Done.

The upfront deposit or retainer is applied to the selected invoice.

Cancelled Job: Manage upfront deposits or retainers

If a customer cancels a job for which you accepted an upfront deposit or retainer, the deposit doesn't remain as a liability.

You have two options to handle upfront deposits or retainers for cancelled orders, depending on your business process:

• Keep all or part of the deposit
• Refund the full deposit to the customer

The following sections provide detailed steps for each option.

Option A: Keep all or part of an upfront deposit or retainer

To keep all or a portion of the deposit after a job or order is cancelled:

1. Create an invoice for the customer.
2. In the Detail section, select the appropriate items for the cancelled project or job from the Item drop-down list.
3. On the next available line, select the item you created for Upfront Deposits from the Item drop-down list.
4. Enter the amount of the deposit you are keeping as a negative value in the Amount field.
5. (Optional) In the Description field, enter a note to make it easier to track this transaction in reports.
6. Select Save and Close.

The portion of the upfront deposit or retainer you are keeping is recorded as income, and the part you are not keeping is recorded as refunded to the customer.

Option B: Issue a refund of an upfront deposit or retainer

To issue a refund:

1. From the Customers menu, select Create Credit Memos/Refunds.
2. From the Customer: Job drop-down list, select the customer or job.
3. In the Detail section, select the Upfront Deposit item you created from the Item drop-down list.
4. Enter the amount to be refunded in the Amount field.
5. Select Save and Close.
6. In the Available Credit pop-up dialog that appears, select Give a refund and select OK to close the dialog.
7. In the Issue a Refund dialog that appears, select the bank account the upfront deposit or retainer was originally deposited in from the Account drop-down list and select OK to close the dialog.
   You can optionally specify how to refund the customer using the options on the Issue this refund via drop-down menu.
8. Select Save and Close.

The refund is issued for the full amount of the upfront deposit or retainer.