Retention is very common in construction. So much so that when you open a sample company file in QuickBooks or if you create a new one using the standard chart of accounts for a contractor you will see the line item in the item list for retention or “retainage”. As with many things in accounting and QuickBooks there are many ways to treat this. Ultimately we are concerned with 2 things here
- How to book Retainage
- How to track Retainage
The question comes up as to how one remembers to collect this retention at the completion of a job. This really comes down to establishing some procedures and of course implementing them and there are some things you can set up in the memorized reports in QuickBooks that will make this easy.
Booking Retainage for Contractors
This part can be a bit tricky. As you will see in the video there is already a “retention” item, but by default this item is mapped to an income account. You will want to fix this. It should be mapped to an Other Current Asset called “retainage Receivable.” The item should be set up as a “Service” item.
Retention should not be in the estimate. The reason is the client may be confused if they see this, not realize that retention is in there and they may actually think that you are bidding the job for 10% less. This is bad for business and clients generally do not like it when you go back and tell them that the $90,000 job was really $100,000 less 10% retention. The client was thinking it was a $90,000 where $9,000 will be held for completion. Once you post the invoice you book the retention line item as a negative number reducing the invoice total by 10%. This will cause that 10% to show up on the balance sheet in the retainage receivable account.
Tracking Retention for Contractors
Once the correct infrastructure is set up as per the above, you can easily set up your tracking system in QuickBooks. It is easier once you have at least 2 items in there.
- Run the Balance Sheet
- Double click retainage receivable
- Total By Customer
- Re-name and memorize the repot
The video below will show you exactly what all of this looks like.
Please post your comments and questions below!