Apply retainer deposits to invoices

"Could this also be done as suggested in QB Help when applying upfront payments (carried as liabilities until the work has been performed) to invoices? With this method, instead of using a credit memo, a line item (e.g., Client Phase Payment) with a qty of -1 is added to the invoice along with the amount of the payment. Or, is there a reason it shouldn't be done this way with progress invoicing?"

Here is what happens and why I do not recommend this method:

Every invoice that has any negative on it, this is the Date of that payment, applied to the invoice = Paid on Cash Basis. If that prepayment makes a Partial Payment, this is Partially paid and Weighted allocation. If there is Sales Tax, that also is Partially owed. A $100 sale with 7% sales taxes, that is Half-paid, will = $50/$107 Cash Basis Paid for that date.

You can see this in my attached example.

We don't even have sales tax consideration. Here is another reason I stopped doing this, however:

In Customer Center and in Transaction Listing reports, you will see the Transaction as a row with its amount. Example: If you get prepayment and the invoice has that as negative, your Transaction List and report will show the invoice amount reduced. Example: $100 invoice with $100 prepayment entered directly on it = $0. Every time you look at that, you need to double-click to Open it to find the Actual Sales amount was $100. It shows as a $100 sale on Sales reports, but in Transaction Listings, the invoice ended as $0. If you use Invoice for $100, and credit memo to make the $100 prepayment available, then in Transaction listings in Customer Center and in reports, you see $100 invoice and $100 credit memo. And now, the clarity of the credit memo existing = I know I applied their prepayment, because that is why I use Credit Memos; and now you Also get to put a Date on the Credit Memo to apply their prepayment and control this for "partially paid by prepayment" to avoid the Cash Basis weighted allocation as the Invoice date.

If you use a credit memo for the retainer and apply it to an invoice doesn’t it wipe out the revenue? Example: The invoice is for $650 and the credit memo or the retainer is for $650. If the credit memo is used for the invoice the revenue would be zero dollars. This doesn’t make sense to handle retainers this way. What is the correct way to handle retainers? Especially if you are using a liability accounts.

Hi there, trocky.

Let me share some details about retainers.

Upfront deposits or retainers are your liability, not income, even though you deposit the money into your bank account. When you record it, you should choose a liability account. It'll be converted into income once you apply it to an invoice.

We just need to make sure that we set it up correctly. For more details, here's how to manage upfront deposits or retainers in QuickBooks Desktop.

Shoot me a reply if you need anything else. Stay safe!

So, do I NEED to enter a sales receipt for upfront deposits/retainers if I'm using a liability account?  Also when I do it this way, I don't see in the customer's account any balance from the retainer. How do i know if I owe anything back to the customer at the end of the job? We give unused retainers back to our clients.

When I use Received Payments, I can see the customer's balance in their account.

Good Morning, @trocky. 

Yes is the answer to your first question about entering sales receipts. This will be the best way to record this information in QuickBooks Desktop (QBDT).

However, you're having issues with the sales receipt not applying to the customer's balance. The way QuickBooks is designed when saving a sales receipt it should be applied to your customer's balance. Although this is supposed to happen, sometimes your product can receive glitches or errors to cause small inaccuracies like the one you're encountering with the customer's balance. Don't worry. All you need to do is create a new customer and merge the two to eliminate the glitch or error. 

Here's how: 

Create New Customer

1. Go to the Customers menu. 
2. Select the Customer Center option. 
3. Right-click on the "Customer Center" page and pick New Customer. 
4. Fill in all the required information and press OK. 

Merge Customers

1. Go through steps 1-2 from above. 
2. Copy the name of the customer that would like to keep. 
3. Right-click the name of the customer that you would like to merge and then tap Edit Customer: Job.
4. Replace the customer name with the one you took note of or copied. 
5. Hit OK. 
6. Select Yes to successfully merge your customers. 

Here's a link that can help you out with merging different information in QBDT: Merge Accounts, Customers, and Vendors. 

I'll be more than happy to review any other questions or concerns that you may have in the future. The Community is always here to have your back. Wishing you and your business continued success!

Thank you but we are not seeing the balance for ALL the customers when applying a portion of the retainer to an invoice. I believe it's because the balance of the retainer stays within the liability account and not at the customer account level.

Thanks for reaching back out and clarifying, @trocky. 

Since you've already tried the steps above and all of your customer's balances aren't applying to the portion of the retainer to an invoice, then I recommend contacting our Customer Support Team. They'll be able to use a screen share tool to help walk you through some additional steps to help resolve this problem. They can further investigate the issue by using the screen share and other tools if needed. 

Here's how: 

1. Go to the Help menu. 
2. Pick the QuickBooks Desktop Help option. 
3. Press Contact Us. 
4. Give a brief description of the issue and click Continue. 
5. Scroll down and choose to Get a callback. 

Let me know how it goes. Hit the Reply button at the bottom of this post if you have any other concerns. Bye for now!

They won't help me because I do not have the services they cover.  If anyone else has had this issue, please reply to this email.

Hello
I have a similar question. Could you please explain how to enter a customer retainer when using the accrual basis? How is this recorded in QBO? The examples I read were for QuickBooks desktop and cash basis, but they did not cover this scenario. 

Example:
The company takes a retainer for installation work to be performed in the future.
The customer pays 50% now, and the rest when the work is done (6-9 months).
These are the steps that I believe should be followed:
Step 1. Create a product/service account (Installation Service).
      Use a deferred revenue account.
Step 2. Create an invoice for the Installation Service.
Step 3. Apply the payment (retainer) to the invoice.
Step 5. When the work is completed, apply the last payment to the invoice to close it out.
Is this the correct way to do this? Do I need to enter a year-end adjustment, if the last payment will be made in 2022? Thank you. 

It seems like this is a duplicate post, @AnneB8.

I've added this link as to where my colleague LeizylM, answered your concern: https://quickbooks.intuit.com/learn-support/en-us/payments/re-upfront-deposits-accrual-basis/01/9118....

Please read this article for more details on retainers: How to Record a Retainer or Deposit?

Feel free to get back to me if there's anything that I can help. Stay safe!