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RebeccaTiffany
January 18, 2024
Question

P&L showing Contractor Retention is paid when it has not yet been paid

  • January 18, 2024
  • 3 replies
  • 0 views

We are a contractor and when we invoice the owner of the project always holds back 10% retention on every invoice until the entire job is completed. 

 

Here is what our invoices look like

Foundation   $10,000

Retention      -$1,000

Invoice Total   $9,000

 

When we receive the $9,000 payment the invoice shows paid $9,000

 

The Profit & Loss however shows that we were paid $10,000 but that isn't true. This is happening with every single invoice paid. Why does it do this? I don't see where the $1,000 is ever taken back out on the P&L.

 

This is a huge issue I am concerned we have been over reporting our income on our tax returns and being overcharged on income taxes.

 

Please help

 

We are Cash Basis and I have confirmed the P&L shows this on Cash Basis

3 replies

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RogelioL
January 18, 2024

I understand the importance of running an accurate Product&Loss (P&L) report for your business, Rebecca.

The report on your P&L will always vary based on the amount recorded in your invoice. I recommend checking the 10k transaction amount to identify what caused the discrepancy and to delete or remove it if necessary.

Here's how:

  1. Click on Reports at the left pane.
  2. Search for Profit and Loss, then open the report.
  3. Locate the transaction, then click the amount.
  4. Review the from there details.

 

Additionally, I have included this article that can assist you in maximizing the benefits of your financial reports: Customize reports in QuickBooks Online.

I'll be on the lookout for your response. Please let us know if you have further concerns regarding your reports or any other QuickBooks-related issues. Stay safe.

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RebeccaTiffanyAuthor
January 18, 2024

This is happening for every single invoice ever invoiced  for as many years as I go back.

 

I did look at the P&L transactions, It shows Foundation $10,000, even though there was a -$1,000 line bringing the invoice payment to $9,000 and even though the check recorded was only $9,000. P&L shows $10,000 received and is wrong.

Adrian_A
Adrian_A
January 19, 2024

Hello Tiffany,

 

I'm here to help fix the issue you encountered about recording contractor's retention.

 

The data on your report is based on how you record the transaction. With that, can you share here how you recorded the invoice?

 

In the meantime, when you record retention, you'll create a different retention item and a retention account. Then, make sure that the amount is set to negative.

 

Here's how to create a retention account:

 

  1. From the Transactions tab, select Chart of account.
  2. Click New.
  3. On the Category Type section, select Other Current Assets.
  4. Select Retainage as its Detail Type.
  5. Give it a Name.
  6. Click Save.

 

Then, create a retention item:

 

  1. From the Sales tab, select Product & services.
  2. Click New.
  3. Enter a Name for the item.
  4. Select the account created a while ago.
  5. Click Save.

 

From there, you can create an invoice.

 

Moreover, I've added here an article on how you can review retainer: View Retained Earnings account details in QuickBooks Online.

 

Feel free to come back here if you need anything else. Thanks!

Rainflurry
Rainflurry
January 19, 2024

@RebeccaTiffany 

 

I would strongly suggest not taking advice from QB employees on this.  This is way beyond their scope IMO.

 

"The Profit & Loss however shows that we were paid $10,000 but that isn't true. This is happening with every single invoice paid. Why does it do this? I don't see where the $1,000 is ever taken back out on the P&L."

 

QB is unable to reduce income by the $1,000 retainage on cash basis.  The way QB is designed, it cannot accurately adjust a cash basis P&L when an item on an invoice is mapped to a balance sheet account - as you have with the retainage item.  Because you're on cash basis, your CPA/tax accountant should recognize the retainage asset on your balance sheet as an issue and reduce your income by that amount.  They may not suggest making an adjusting entry in your books, but they should adjust for that on the return.  

    R
    RebeccaTiffanyAuthor
    January 19, 2024

    Thank you for the video! I understand the retention line is tied to the balance sheet however if I am logging a payment of $9k it is beyond me why the cash basis P&L would show that we received $10k when we only received $9k.

     

    I really cannot believe that QB hasn't fixed this issue in all these years. 

    Rainflurry
    Rainflurry
    January 20, 2024

    @RebeccaTiffany 

     

    In thinking about this issue some more, the issue is that the invoice has $10K in income and $1K in a balance sheet asset account.  Therefore, in order to keep your balance sheet balanced, QB has to book $10K in income (equity) to equal the $1K retainage (asset) and the $9K cash (asset) in order to keep things balanced.  Assets = Liabilities + Equity (10 = 0 + 10). 

     

    So you have a couple options: 

     

    1) Put the retainage on a separate invoice.    

     

    2) You can assign an income account to the retainage item.  That way, the retainage item will reduce your income by $1K (with a separate negative Retainage Receivable line item on your P&L) instead of booking it to an asset account on the balance sheet.  In the video I sent, the guy mentions that the default account on the Retainage Receivable item (in QB Desktop for Contractors) is an income account and he didn't understand why.  I think this is why.  You need your retainage item to reduce your income.  Then, when you receive the retainage, book that to Retainage Receivable and it will remove the negative income on the P&L.  

     

     

    Rainflurry
    Rainflurry
    January 20, 2024

    @RebeccaTiffany 

     

    "Here is what our invoices look like

    Foundation $10,000

    Retention -$1,000

    Invoice Total $9,000"

     

    Disregard my last post.  The answer is, instead of creating the invoice as shown above, create the invoice with two line items: $9,000 Foundation and +$1,000 Retention.  When you receive the $9K payment, that will book $9K in cash basis income and you will have $1K as a receivable (accrual).  The issue with the way it's being done now is that you cannot have an asset showing on your cash basis reports without showing $10K in income.  You need that asset to go away on your cash basis balance sheet.  Doing it this way will fix it.

    Rainflurry
    Rainflurry
    January 20, 2024

    @RebeccaTiffany 

     

    Although that will increase the invoice amount to $10K so I'm not sure if that would work for you.  The retainage item assigned to an income account and added as a negative amount on the invoice is probably your best bet, or a separate retainage invoice, either way. 

     

    Sorry for the flurry of responses - too much caffeine this morning!

    R
    RebeccaTiffanyAuthor
    January 22, 2024

    Hi thanks for all your input! I was thinking if I should change retention to income. I just think if I apply a $9k payment then the p&l should show $9k received it's just weird to me. So what if the whole invoice was $10k no retention line and I logged a $9k payment would the p&l still show $10k received when only a partial payment was received. So odd to me.

     

    Aside from doing it as an income account or a manual entry I don't see a way around this, I think QB should fix in cash basis to show the real figure that was actually received in income but I've had 0 help from QB on this issue. It seems like most ppl at QB support don't even know what retention is

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