@Malcolm Ziman

This doesn't matter to the question: "Did you receive the Retainage in a time period outside or inside of the time period of the P&L ?"

When you treat Retention as Asset, they created Gross income, and showed they are not expecting that total as Funds. Yes, the Gross Sale is going to show. I know you sometimes struggle with Cash vs Accrual Basis, so let's simply review the Accounting behind the scenes of their invoice:

Income item $5,000 Credit to Income

Invoice = Debit to AR. The Debit is in lieu of Funds. If this was a Sales Receipt, that Debit would be the Funds, as cash or bank or to the Undeposited Funds account.

Now let's put a Retainer Item on the invoice using Negative value, or on a credit memo. Either is the Same event = this item linked to Asset, using negative value, = Debit to Asset. Think about this as Equivalent: the invoice Debits AR, a type of Asset. They essentially Split the total AR, splitting a portion to a different Asset = Retention.

Also, notice this never changed the Income. They now have:

$5,000 Gross Income

$1,000 diverted as Other Asset (Retention)

$4,000 as AR

And later, they invoice for the retention. That will:

Debit AR and Credit Retention asset

In other words, they cleared one Asset by moving it to another (AR). Now we get Funds, which = Asset. This also never hits Income.

This is why a Cash Basis entity never holds Retention as Other Current Asset; it is going to reduce income when you list it as negative. It is going to be income later, when you invoice for it. It does this because your Retention item is linked to Income, not Other Current Asset.

They know what they wanted, but their Concept for the setup is wrong.