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How do I account for retention on customer payments?

Forum|Forum|2 years ago
January 29, 2024
2 replies
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How do I account for retention on customer payments without making it look like I am underpaid or like the contract is paid in full when the retention is yet to be paid at the end of the project?

QuickBooks Online

Best answer by RogelioL

Hello, @lhumbles.

Allow me to share with you the steps for creating a retention on customer payments.

First off, let's track the retainers you received from your customers by creating a liability account report:

Go to Settings ⚙, then choose Chart of Accounts.
Click New.
Choose Other Current Asset for the Category Type.
Under the Detail Type, select Retainage.
Enter Retainage Receivable for the Name.
Hit Save.

After this, let's proceed on creating a retainer item to use when making an invoice:

Navigate to the Gear ⚙ icon, then select Products and Services.
Click New, then choose the Service or Non-inventory type.
Enter (Retainage) for the item Name.
Put a checkmark next to I sell this product/service to my customers, under Sales Information.
From the Income Account drop-down, select the Retainage Receivable account (the account you've set up).
Click Save.

Once everything is in place, you're now ready to enter the retention amount on the invoice:

Click the +New icon.
Select Invoice.
Choose a customer or contractor's name.
Modify the remaining fields of the invoice, including the purchased item line.
Select Retainage from the Product/Service column on the next available line item.
Enter the amount of the retainage as a negative (-) number in the Rate column. Note: If your retainage is a percentage, you must calculate this manually.
Hit Save.

Moreover, you can check out this article for additional reference about recording a retainer or deposit in QuickBooks Online: Record a retainer or deposit.

Furthermore, in case you need to run a report in the future, you can visit these articles:

Feel free to reach out if you have more questions about retainage or any QuickBooks-related queries. It's always our pleasure to help. Keep safe.

R

RogelioLAnswer

Hello, @lhumbles.

Allow me to share with you the steps for creating a retention on customer payments.

First off, let's track the retainers you received from your customers by creating a liability account report:

Go to Settings ⚙, then choose Chart of Accounts.
Click New.
Choose Other Current Asset for the Category Type.
Under the Detail Type, select Retainage.
Enter Retainage Receivable for the Name.
Hit Save.

After this, let's proceed on creating a retainer item to use when making an invoice:

Navigate to the Gear ⚙ icon, then select Products and Services.
Click New, then choose the Service or Non-inventory type.
Enter (Retainage) for the item Name.
Put a checkmark next to I sell this product/service to my customers, under Sales Information.
From the Income Account drop-down, select the Retainage Receivable account (the account you've set up).
Click Save.

Once everything is in place, you're now ready to enter the retention amount on the invoice:

Click the +New icon.
Select Invoice.
Choose a customer or contractor's name.
Modify the remaining fields of the invoice, including the purchased item line.
Select Retainage from the Product/Service column on the next available line item.
Enter the amount of the retainage as a negative (-) number in the Rate column. Note: If your retainage is a percentage, you must calculate this manually.
Hit Save.

Moreover, you can check out this article for additional reference about recording a retainer or deposit in QuickBooks Online: Record a retainer or deposit.

Furthermore, in case you need to run a report in the future, you can visit these articles:

Feel free to reach out if you have more questions about retainage or any QuickBooks-related queries. It's always our pleasure to help. Keep safe.

W

WAS-adg

QBO will not allow me to put an asset COA in the income account when adding the new Product/Service.

R

RheaMaeH

I appreciate you for chiming in this thread, WAS-adg. I'm here to provide information about adding assets to your income account when creating a new Product/Service in QuickBooks Online (QBO).

QuickBooks Online doesn't allow assigning an asset to an income account when adding a new inventory item. This is to ensure proper accounting practices and accurate financial reporting. However, for non-inventory and service items, you can assign asset accounts to income accounts.

You can also refer to this article on setting up product and service items you buy and sell but don't track as part of your inventory: Add product and service items to QuickBooks Online.

For future reference, you can reconcile your accounts to ensure they match your bank and credit card statements.

Please feel free to click the Reply button if you have other questions about adding an assets account when creating a new product/service item. I'm always here to help.

Rainflurry

@lhumbles

The instruction provided by @RogelioL work if you're on accrual basis. If you're on cash basis, assign an income account to the retention item under 'Income account'. Otherwise, QB will book the entire invoice amount as income regardless of the amount of payment received.

M

MelTilk

@Rainflurry

Hoping you can help. We are on cash basis and are having the following issue: For invoices with the item Retention included, even when no payment is received against an invoice, the retention amount on that invoice is posting under Sales in my cash basis P&L (the original amount shows the total invoice amount and the column "paid amount" shows the Retention amount). I cannot figure out why this is happening other than the fact that the retention amount on the invoice is a negative number, and QB posts the negative service item "Retention" as a sale (credit). This is clearly not correct and overstates cash basis sales. What am I missing?

More context:

We need to keep track of our retention balances separately from our regular AR. Payment cycle and billing timeline/method is different. Thus we have a Retention Receivable account and a Retention A/R account. We create the primary invoice for services (bid amount) separately from a Retention invoice. The primary invoice includes the total bid amount as one line item, and on the second line we have a Retention amount that is negative 5% of the total; thus a negative number reducing the total bid amount. That item "retention" then posts to the Retention Receivable account. As a second step, we create an invoice for the retention funds that will be collected in the future (can be up to 2 years later depending on the job duration). We use the same item "Retention" on the invoice, but post it to the account "Retention A/R" instead of "A/R". The Retention Receivable account thus acts as a clearing house (debit and credit from each invoice clears out the balance). I have attached an example of an invoice for your reference. The $879.80 on this invoice is posting to our August cash basis P&L even though no payments have been received.

M

MelTilk

I went back and read the thread - these are Retention not Retainers. That is the question that is asked by the first user. Perhaps this set up is incorrect as we are not receiving payment up front from customers, we are required to hold back (not invoice for) a certain % until after the job / contract is fully complete and signed off. Then we can bill the Retention amount to the customer and get paid.

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