customer invoice item needs to point to a liability account for a depsoit/retainer

We can set up a retainer, Von.

The retainer is a liability to show that, although you received the money, it only belongs to you once used to pay for services. I'm here to guide you through the process.

First, we'll need to create a liability account to track the amount you received. Here's how:

1. From the Accounting tab, select Chart of accounts.
2. Click New.
3. From the Account Type dropdown menu, select Current liabilities.
4. From the Detail Type dropdown menu, select Client Trust Accounts - Liabilities.
5. Enter a Name for the account.
6. Select a Default GST Code, enter an Unpaid balance, and an as of date.
7. Select Save and Close.

Then, let's set up a retainer item:

1. Select Products and services from the Sales tab.
2. Click New.
3. From the Product/Service information panel, select Service.
4. Give it a name.
5. From the Income account dropdown, select the liability account.
6. Click Save and close.

Afterward, you can create a liability account if you want to keep the money you received in a separate trust account. Lastly, you can create a sales receipt or invoice for the retainer you received. I've added this article for the detailed steps to add an invoice: Step 4. Create a sales receipt or invoice for deposits or retainers.

Also, if you use an external platform to process payments, you can keep track of those payments in QuickBooks. Here's an article for reference: Record invoice payments in QuickBooks Online.

I'm always around whenever you have concerns about recording a retainer.

Thanks for the repsonse Adrian_A.  I had already followed those instructions to record a retainer or deposit and everything now appears to be correct in the chart of accounts, balance sheet and profit/loss reports.

If the tour has insufficent numbers to proceed how do I refund the payment received which is being held in a liability account? I have read the article on how to handle customer refunds in QBO but I am confused whether  we should use an adjustment note or a refund receipt? The invoice is fully paid and we are using Simple Start QBO on a cash basis.

I'm having a similar issue.  However, QBO will not allow me to select a non-income account.  I'm trying to select a receivable or liability account, but when I do, I get the following error:

We couldn't save your item.

You can only use specific types of accounts to track products and services. If an item is something you sell, use an income account. If it's something you buy, use an expense account.

How do I fix this?

Your successful inventory management is my priority, RoseGirl23. I'll provide valuable tips on how to handle that situation.

When setting up your retainer item, it's important to consider how you've configured it. The way you've set it up could be the reason why you're encountering an error message when trying to save the item. If you use this item for buying and selling, you should ensure that the I sell this product/service to my customers option is selected. This will ensure that the income and expense accounts are associated with the item.

I would also appreciate it if you could include a screenshot so we can give you accurate steps in fixing this matter.

For detailed information about setting up a retainer item, feel free to visit this article: Record a retainer or deposit.

Let me know how it goes by leaving a reply below. The Community is always here 24/7 to provide our customers a helping hand with any QuickBooks-related concerns.