Cash income reflects total amount of invoice including amount withheld for retainage.

You need to know if your retainage is treated as a reduction of Income or as an Asset. You link it to the type of account that applies for your Accounting requirements. And later, you will Invoice using only the Retainer item. That means:

If this is a Cash Basis entity, the use of the Retainer item (linked to income) negative on the actual sale first reduces Income on that sale; later, it is New income when you charge the customer for it.

Or, as an Accrual Basis entity, the use of the Retainer item (linked to Other Current Asset) negative on the actual sale first creates An Asset that is in lieu of Funds. This is what you have right now = the Retainer is instead of them having to pay All the Money. Money is an asset and you parked some value as Other Current Asset. Then, later, you invoice for the Retainer, which is basically, Moving the retainer amount out of that Other Current Asset to show that now you anticipate actual Funds for it.

Nothing here is wrong, except your understanding of where to see how this info reports. Make sure your entity is Allowed to hold this as Other Current Asset, in the first place.

I understand. However, it is not cash income until it is invoiced. It is still shows up as cash income on the P & L; it again shows up when it is invoiced and paid.  Taxes reported on Cash basis. Receipt of payment may not be for over a year. Then it is reported again when received. 

You are not really following the data flow correctly, here. Let's take it in pieces. And it matters if you are a Cash Basis Entity or Accrual. Do you do $5m in business?

"However, it is not cash income until it is invoiced."

That is Not True for an Accrual Basis Entity, which links retention to Other Current Asset. Let's do one example:

Invoice for $5,000 <== income

Retention is $1,000 <== other current asset, to be charged later

= $4,000 due now

The invoice is AR, which is a type of Asset. So, now you have:

$4,000 owed in AR

$1,000 owed later, sitting in Other Current Asset

= $5,000

That is Money being split. $4,000 now and $1,000 later. The Income is Always there, as $5,000, for an Accrual Basis entity, even if that invoice is never paid.

"It is still shows up as cash income on the P & L; it again shows up when it is invoiced and paid."

Not as Income. When an accrual basis entity Invoices for Retention, later, they are charging that Other Current Asset. That Clears the Other Current Asset and results in Funds to Banking. See how this never hits the P&L later?

"Taxes reported on Cash basis."

Then you have your Retention Item set up Incorrectly. What you want is:

$5,000 sales income now

Retention $1,000 <== linked to one income account used only for retention and write offs and refunds

= $4,000 now

And later, you invoice for Retention, and that will be income Then.

"Receipt of payment may not be for over a year. Then it is reported again when received."

You have your Item Setup Incorrectly. Edit the item and change the account link. QB offers to move the existing data for you.

Thanks. That explains how QB handles. 

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@wfbrbutch wrote:

Thanks. That explains how QB handles. 

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what does?

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@wfbrbutch wrote:

Contractor Edition; Ex., Total invoice for $50,000 less Retainage $5,000= $45,000. Retainage is sent to an asset account until invoiced. Payment received is $45,000.  P&L on Cash basis shows the total amount of $50,000 as income. Why? This is incorrect. Any suggestions?

 

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Did you receive the Retainage in a time period outside or inside of the time period of the P&L ?

@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.

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@qbteachmt wrote:

I know you sometimes struggle with Cash vs Accrual Basis.

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I am not a psychologist but I believe this is called Personal Inadequacy Redirection

Thanks Malcolm,

You explain much better. Now I know how to workaround.

You are a genius!. I've been racking my brain trying to figure this out

We are a General contractor and most job hold 10% retainage:

I have a similar question regarding retainage:when we create an invoice and withhold 10% what number is reported as sales? 

100,000 Inv.

10% -10,000 retainage

= $90,0000 Inv. less retainage is paid

How is that reported on the P/L report and than when we bill for the $10,000 retainage  how is that number reported on a P/L?

We are struggling with what amount is reported as sales on the front end and the back end.

How should the Retention item be set up correctly?

I am having issues with paying monthly sales tax. If I show retention on an invoice, it is reporting that in my Sales Tax Liability for the previous month.

Please help!

I can help you with setting up a retention item, @icjerk1.

You can go to the Chart of Accounts to setup an account for the Retention account. Then you can use this account when setting up an item that you can use when creating an invoice or sales receipts.

Here's how:

1. Go to the Lists menu at the top and click Chart of Accounts.
2. From the Account dropdown, select New.
3. On the Add New Account window that appears, select the Other Account Types radio button.
4. Select Other Current Liability. 
5. Provide all the necessary information for this account. 
6. Click on Save and close once you're done. 

Then, to set up the retention item that will appear in the invoice, see the below steps:

1. Go to the Lists menu at the top.
2. Select Item List and press Ctrl + N on your keyboard and then select Other Charge from the Type dropdown.
3. Name the charge Retainage Receivable.
4. Click the dropdown menu to select the retention amount that you set up.
5. Clear the check box beside the reimbursable charge option and click OK.

Refer to these articles for more information about adding new accounts and items in QuickBooks Desktop (QBDT):

• Add, edit, and delete items in QuickBooks Desktop
• Work with the chart of accounts in QuickBooks Desktop

From here, you can now create an invoice in QuickBooks Desktop to add these items.

Let me know if you need more help creating an item for retention. I'm always here to assist. Have a wonderful day!