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gilbertinpdx
February 18, 2024
Solved

Applied retainers not reflecting on cash income statement.

  • February 18, 2024
  • 2 replies
  • 0 views

We are a cash basis company providing consulting. 

I receive retainers toward our services before work begins. 

We create a sales receipt when the retainer is received.  The amount shows in the liability section of the balance sheet. When the job is complete, we invoice, applying the retainer. 

 

The trouble I am having is that our invoice is typically more than the retainer. When this happens, the cash-based P&L does not reflect the retainer amount that has been applied until the client pays the remaining balance.    This is not how it should work.  Once the retainer is applied, that amount should reflect in the cash-based P&L. Its driving me a bit bonkers.  By, the way, the accrual-based P&L is handling it correctly. 

 

Is there a setting problem?

 

 

Best answer by Rainflurry

If I use an income account when receiving the retainer, then it will recognize the retainer as income.  It's not. It's a liability until we have performed the work. So, I am not clear how this helps. 

 


@gilbertinpdx 

 

"If I use an income account when receiving the retainer, then it will recognize the retainer as income. It's not. It's a liability until we have performed the work. So, I am not clear how this helps."

 

It's only a liability if you're on accrual basis.  If you're on cash basis, it is income when received. 

 

From IRS Publication 538:

Advance Payments

Generally, you report an advance payment for goods, services, or other items as income in the year you receive the payment. However, if you use an accrual method of accounting, you can elect to postpone including the advance payment in income until the next year.  

2 replies

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CarlSJ
February 18, 2024

Hello there, gilbertin. Allow me to assist you so you'll be able to manage your transactions accurately in QuickBooks Online (QBO).

 

The reason that you're unable to see the cash basis retainer that you've applied is that you record it as an invoice. You'll need to create a Sales Receipt under the correct customer and use the Cash as the Payment method to be able to reflect it on your cash-based reporting. Also, select the Retainer under your PRODUCT/SERVICE column and enter the specified amount. Make sure to double-check the item Retainer that you've created is under Other Current Liabilities on the Income account dropdown from the Products & services. I've attached an article to guide you through how to create single or import sales receipts in QBO: Create sales receipts in QuickBooks Online.

 

Moreover, you can now be able to see the amount as Liabilities when you run the Balance Sheet Report. Here's how:

  1. Go to the Reports tab and search for the Balance Sheet report from the dropdown.
  2. Choose All Dates from the Report period dropdown.
  3. Select Cash for the Accounting method.
  4. Click Run report.

 

Furthermore, you can check out this article to learn how to personalize and add specific info to your sales forms in the future: Customize invoices, estimates, and sales receipts in QuickBooks Online.

 

Keep in touch if you have any questions regarding sales receipts, or if there's something else I can assist you with. I've got your back. Stay safe.

Rainflurry
Rainflurry
February 18, 2024

@gilbertinpdx 

 

@CarlSJ 's response of "You'll need to create a Sales Receipt under the correct customer and use the Cash as the Payment method to be able to reflect it on your cash-based reporting." should obviously be ignored.  It makes for a good laugh though. 

 

QBO is unable to move the retainer received from a liability account to an income account when switching between cash and accrual.  You will have to decide whether you want your cash or accrual reports to be accurate.  If cash, then the retainer received should be booked as income when received, not a liability.  Then, your P&L will accurately reflect the retainer as income when received.  If you then apply the retainer item to reduce the invoice amount due, it will also accurately reflect the retainer income until payment is received on the invoice, at which point, the entire invoice total will be booked as income on cash basis.  

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gilbertinpdxAuthor
February 19, 2024

Thanks for the clarification on the "create a sales receipt".  That made no sense to me. 

So., to get the cash income statement to be correct, it sounds like I need to do a journal entry crediting revenue and reducing the retainer liability.  Then, when the entire invoice is paid, reverse it?

 

That seems crazy. QB should automatically reflect the retainer amount as a cash receipt once its applied. 

Rainflurry
Rainflurry
February 20, 2024

@gilbertinpdx 

 

You can't rely on QB to be able to accurately switch between cash and accrual using the radio buttons.  If you're cash basis, then record the retainer received as income, not a liability.  There's no need to make journal entries.  If you assign an income account like 'Retainer Income' to the retainer item, QB will accurately record the retainer received as income on your cash basis P&L.  Then, when you apply the retainer item to a future invoice as a negative amount, QB will zero out Retainer Income and book the full amount of invoice income as you would want.  Creating a separate Retainer Income account also allows you to quickly track outstanding retainers.        

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