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A
akraemer
April 5, 2022
Question

Contractor Retention

  • April 5, 2022
  • 3 replies
  • 0 views

I am new to QB, but the lady currently handling ap & ar says this is how she was told from her CPA to record retention: 

 

Debit the amount from the bank

Credit the retention

 

Debit retention in AP

Credit Income Sales. 

 

The problem with this is that the invoices show an open balance even after the retention is paid. Has anyone had a CPA tell them to do it this way before? Is there an easier way to do this that will zero out the invoice balance?

3 replies

M
MirriamM
April 7, 2022

Hello there, @akraemer.

 

You can set up your retention in your QuickBook Desktop (QBDT) account so the retention is automatically applied when necessary. By doing this, the retention then remains as an asset until it's paid in full. 

 

To set up a retention account so you can save time and the calculations that it requires to figure out retention for each job. Here's what you'll need to do:

 

  1. Go to the Lists menu at the top and click Chart of Accounts.
  2. From the Account ▼dropdown, select New.
  3. Select an account type, then click Other Current Liability. 
  4. Next to the Retainage Receivable option, enter the percentage of retention you'd like to apply and click OK.

 

Then, to set up the retention item that will appear in the invoice, see the below steps:

  1. Go to the Lists menu at the top.
  2. Select Item List.
  3. Open a new item by pressing Ctrl+N and then clicking Other Charge.
  4. Name the charge Retainage Receivable.
  5. Click the drop-down menu to select the retention amount that you set up.
  6. Clear the check box beside the reimbursable charge option and click OK.

 

After that, create a new invoice for a client to whom retention applies. You can now enter the payable amount and then enter the Retention Receivable as of the option on the next line. Doing so, the system will automatically deduct the retention from the amount due for the invoice. 

 

To check what is still outstanding for clients using retention, you can check your retainage receivable report by clicking the Lists menu at the top and then Chart of Accounts. Then, double-click Retainage Receivable. 

 

 Additionally, before doing the steps above, I suggest consulting an accountant. Your accountant can help guide you through how to handle this kind of situation.

 

If you need help with processes and other tasks in QBDT in the future, visit our Community website. It contains helpful information and guides that'll point you in the right direction. 

 

If you have any other questions when using QuickBooks, click the Reply option below. I'll be here to help. Take care always!

A
akraemerAuthor
April 12, 2022

@MirriamM I appreciate your response! We don't have the option to pick Retainage Receivable or add a percentage.

 

We are using QB Enterprise Solutions Contractor 20.0

Rainflurry
Rainflurry
April 12, 2022

@akraemer 

 

Retainage Receivable should be an Accounts Receivable (A/R) asset account, not a liability account as your screenshot shows.  You can receive the retainage on an invoice if it is assigned to an A/R account.

 

I was initially confused because you mentioned A/P which would imply you are paying the retainage, not receiving it. 

Rainflurry
Rainflurry
April 7, 2022

@akraemer 

 

It sounds like you're the party paying the retainage to the contractor, correct?

 

If so, debit the expense and credit A/P when holding the retainage.  When paying it, debit A/P, credit the bank account.

 

 

A
akraemerAuthor
April 11, 2022

No, we are receiving the retainage. 

B
Brad011
April 15, 2022

How can I write a contract with a customer 

B
Bill Mc1
March 8, 2023

I have set up the various "other asset" accounts for retention.  Everything is running smoothly.  We invoice the retention to the client when the job was finished and paid.  The retention report shows the payment.

 

Now the problem.  Retention received is income.  The payment received is not showing as income on the P&L. 

 

How do I have the retention payment that was received, show as income on the P&L and also have it reduce the "other asset" retention account?

 

Bill

 

    F
    FateCandylaneT
    March 8, 2023

    It's great having you in this thread, Bill Mc1. 

     

    I'll share insights to ensure these retainers will show as income on your Profit and Loss. 

     

    Since you've set up retentions under the other asset accounts, these won't show up on your profit and loss as these are liability accounts. With that said, let's set up these retainers under the Other Current Liability type of account. Then, we'll create an invoice to mark these retention payments as income.

     

    I'll share detailed steps to guide you in setting up retainers as liability accounts. Here's how:

     

    1. From the Lists menu, select Chart of Accounts.
    2. In the Chart of Accounts window, right-click and click 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.
    5. Select Ok.

     

    Once done, you'll need to create an item to use when recording upfront deposit items or retainers.

     

    Here's how to create an upfront deposit item:

     

    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, click the purpose of the deposits you collect.
    4. You can select Service if you collect upfront deposits for services or Other Charge if you collect upfront deposits for products.
    5. Enter a name for the item (for example Upfront Deposit) in the Item Name/Number field.
    6. Select the Upfront Deposit liability account you created from the Account drop-down list.
    7. Select Ok.

     

    Also, let's create an invoice once you've received a retainer for a product or service.

     

    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.

     

    For more detailed information on the provided, refer to this article: Manage upfront deposits or retainers.

     

    Moreover, you can check out these references to help you review your business finances and other data:

     

     

    We'll always be around if you require further assistance managing retentions in QuickBooks. Keep safe, and have a good one!

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