Applied retainers not reflecting on cash income statement.

Hello there, gilbertin. Allow me to assist you so you'll be able to manage your transactions accurately in QuickBooks Online (QBO).

The reason that you're unable to see the cash basis retainer that you've applied is that you record it as an invoice. You'll need to create a Sales Receipt under the correct customer and use the Cash as the Payment method to be able to reflect it on your cash-based reporting. Also, select the Retainer under your PRODUCT/SERVICE column and enter the specified amount. Make sure to double-check the item Retainer that you've created is under Other Current Liabilities on the Income account dropdown from the Products & services. I've attached an article to guide you through how to create single or import sales receipts in QBO: Create sales receipts in QuickBooks Online.

Moreover, you can now be able to see the amount as Liabilities when you run the Balance Sheet Report. Here's how:

1. Go to the Reports tab and search for the Balance Sheet report from the dropdown.
2. Choose All Dates from the Report period dropdown.
3. Select Cash for the Accounting method.
4. Click Run report.

Furthermore, you can check out this article to learn how to personalize and add specific info to your sales forms in the future: Customize invoices, estimates, and sales receipts in QuickBooks Online.

Keep in touch if you have any questions regarding sales receipts, or if there's something else I can assist you with. I've got your back. Stay safe.

@gilbertinpdx 

@CarlSJ 's response of "You'll need to create a Sales Receipt under the correct customer and use the Cash as the Payment method to be able to reflect it on your cash-based reporting." should obviously be ignored.  It makes for a good laugh though. 

QBO is unable to move the retainer received from a liability account to an income account when switching between cash and accrual.  You will have to decide whether you want your cash or accrual reports to be accurate.  If cash, then the retainer received should be booked as income when received, not a liability.  Then, your P&L will accurately reflect the retainer as income when received.  If you then apply the retainer item to reduce the invoice amount due, it will also accurately reflect the retainer income until payment is received on the invoice, at which point, the entire invoice total will be booked as income on cash basis.  

Thanks for the clarification on the "create a sales receipt".  That made no sense to me. 

So., to get the cash income statement to be correct, it sounds like I need to do a journal entry crediting revenue and reducing the retainer liability.  Then, when the entire invoice is paid, reverse it?

That seems crazy. QB should automatically reflect the retainer amount as a cash receipt once its applied. 

@gilbertinpdx 

You can't rely on QB to be able to accurately switch between cash and accrual using the radio buttons.  If you're cash basis, then record the retainer received as income, not a liability.  There's no need to make journal entries.  If you assign an income account like 'Retainer Income' to the retainer item, QB will accurately record the retainer received as income on your cash basis P&L.  Then, when you apply the retainer item to a future invoice as a negative amount, QB will zero out Retainer Income and book the full amount of invoice income as you would want.  Creating a separate Retainer Income account also allows you to quickly track outstanding retainers.        

If I use an income account when receiving the retainer, then it will recognize the retainer as income.  It's not. It's a liability until we have performed the work. So, I am not clear how this helps. 

I agree with the receiving the retainer on a sales receipt and positing to an income account if you are on the Cash Basis. Then when invoicing for the services, once rendered, generate your invoice showing the detail of the work, minus the total amount of the invoice to the Retainer Item which reduces the customer's retainer balance. This moves the income from retainer income to fee income, same as the accrual method but instead you are using an income account, not liability. Otherwise, from what I have read, by entering a deposit to Accounts Receivable (no invoice or sales receipt, just customer overpayment), no income is reflected at the time of receipt.

Then, the company needs to track monthly what their actual liability is for retainers (off the books) on a spreadsheet. I'm currently cleaning up a cash basis company who uses retainers and customer deposits. They keep a spreadsheet for each customer showing invoices and retainers collected but retainer tracking in QuickBooks has not been consistent. In order to know what their actual liability is for retainers, it would be tracked off the books on an Excel spreadsheet.

Year end would only show the retainer balance remaining for those retainers collected in the current tax year.

Am I on the right track? I would appreciate any input if there is a better way.

Thanks for getting in touch with the Community, Lb107. I appreciate your detailed information.

To properly identify if you're on the right track with your accounting, I'd recommend working with an accountant. If you're in need of one, there's an awesome tool on our website called Find a ProAdvisor. All ProAdvisors listed there are QuickBooks-certified and able to provide helpful insights for driving your business's success.

Here's how it works:

1. Go to our Find a ProAdvisor page.
2. Use the City or ZIP search field to specify a location.
3. Select Find a ProAdvisor.
4. Browse through your results and find one that works best for the business. You can click on each ProAdvisor's profile to learn more information about them.

Once you've found an accountant, they can be contacted through their Send a message form.

You'll also be able to find many detailed resources about using QuickBooks in our help article archives.

Please feel welcome to send a reply if there's any questions. Have a wonderful Monday!

I have never understood why QuickBooks insists on doing retainers this way.  Its a pain. 

The way we have learned to do this:

1. When a retainer has been received, enter a sales order, coding it to a "product" called "retainers received". That product is coded to a liability account (retainers on account) rather than an income account.  

2. Yes, keep a spreadsheet to make sure you can reconcile to this liability account. 

3. When it comes time to invoice the client, bill all time and then add a new line to the invoice with the retainers received product (enter as a negative).   

The works well as long as the invoice is LESS or EQUAL TO than the retainer. When the invoice is zero, the income hits the cash P&L as it should. 

But, if the invoice is larger than the retainer (which is typical for us), then it's a bit of a mess.  The problem is that QuickBooks online does not recognize the cash income until that remaining balance has been paid, which is just plain wrong & stupid. By the way, the desktop version does not do this. 

What we do is go ahead and leave it be since the problem is solved once the payment is received. But, at year end, we have to do a journal entry on 12/31 for any of these unpaid invoices that had a retainer to get the cash P&L correct. Debit the retainer liability account, credit revenue. This journal entry must be immediately reversed the following month (01/01) If you don't, cash income will be doubled up in the future when those invoices are paid.  

I hope this helps. 

@Lb107 

"Am I on the right track?"

I think you're spot on.  I have not found a way to record a retainer in QB that posts to income when received on cash basis and to a liability on accrual basis using QB's automated cash vs. accrual reporting.  Tracking retainers off the books is the best way to do it on cash basis IMO. 

@gilbertinpdx 

That doesn't sound very easy.  Why not just invoice for the retainer with a retainer item/product linked to a retainer income account and track the retainers off the books?  That way, your cash basis P&L is correct, and you always know what outstanding retainers need to be applied to future invoices based on your off-the-books spreadsheet.   

Because retainers are not income. They are a liability until the service has been rendered. 

I have tried to book the retainer to the liability account, but QuickBooks has the same issue.  i.e. when the payment is provided from the retainer liabilty account, no revenue is recognized until the client has paid any outstanding amount. 

@gilbertinpdx 

Retainers are income when received on cash basis.  They are only a liability if you’re on accrual basis.  This thread is specifically about retainers on cash basis.