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Level 1

How do I set up a retention account in Quickbooks Online?

 
22 Comments
Level 7

Re: How do I set up a retention account in Quickbooks Online?

That is a good question and would love to see the answer.  I assume you mean retention, like a 15% deduction on customer invoice that you cannot bill until the end of the contract?

QuickBooks Team

Re: How do I set up a retention account in Quickbooks Online?

Hey there, Delamadera.

 

If you're referring to the same thing Teri is asking, I can help you set it up.

 

First, let's create a Retainage account. Here's how:

  1. Click Accounting, then go to Chart of Accounts.
  2. Click New.
  3. Click the Account Type drop-down arrow, then choose Other Current Assets.
  4. Click the Detail Type drop-down arrow, then choose Retainage.
  5. Enter a desired name, then click Save and close.

Then, create a Retainage item. Here's how:

  1. Click the Gear icon, then choose Products and Services.
  2. Click New, then choose Service.
  3. Enter a desired name.
  4. Put a check mark in the I sell this product/service to my customers box.
  5. Click the Income account drop-down arrow, then choose the Retainage account you've created.
  6. Click Save and close.

Lastly, this is how to withhold retainage from an invoice:

  1. Click the Plus sign (+) icon.
  2. Choose Invoice.
  3. Choose the customer.
  4. Fill out the invoice fields.
  5. In the next available line of the invoice, select the retainage item you've created.
  6. In the RATE column, enter the amount of the retainage as a negative (-) number. If your retainage is a percentage, you must calculate this manually.
  7. Click Save and Close.

If you still need our help, don't hesitate to reach out to us. 

Level 7

Re: How do I set up a retention account in Quickbooks Online?

@Kristine Mae  - Thanks for helping.

QuickBooks Team

Re: How do I set up a retention account in Quickbooks Online?

Hello, @Teri.

 

I'm glad I was able to help. Have good one! 

Level 2

Re: How do I set up a retention account in Quickbooks Online?

Dear Kristine Mae

 

Can you please tell me what gear are you referring here:

"Then, create a Retainage item. Here's how:

  1. Click the Gear icon, then choose Products and Services."

I couldn't find it.

 

Moderator

Re: How do I set up a retention account in Quickbooks Online?

Thanks for joining in on the thread, Waqar Ahmad.

 

There are two ways to get to the Products and Services page. You can use the Gear icon that Kristine mentioned above or Sales on the left menu.

 

I've attached screenshots so you can follow through.

 

After that, you can proceed to the other steps that Kristine provided earlier.

 

Let me know if you need anything else.

Capture.JPG Capture 1.JPG

 

Level 2

Re: How do I set up a retention account in Quickbooks Online?

Thank you for your quick response sir.

Sir I checked that you are using QBO Plus while I am using regular quickbooks. (Is there any difference between these two?) I have recently purchased the license and asked different projects of my organization to implement the same. However, they are facing different issues while using it. 

Will you help me sorting out such problems? I am writing all the issues that we are currently facing here below:

 

Vendor Module:

1. There is not any option to book sales tax withheld on the supplier’s invoice?

2. There is not any option to book income tax withheld from the supplier’s payment?

3. The subcontractors module is not available in which the deductions like retention money, risk fund etc may be reflected from the subcontractor’s IPC’s.

4. No voucher number allocated by the system while making the payment to the vendor.

5. The vendor bill and the payment voucher are two different documents as per software format. There is not a single voucher that reflects the double entry effect of both sides.

6. The system does not accept the check number in case of partial payment made to the vendor.

 

Customer Module:

1. The name of customer module should be Employer Module (That is suitable in our case).

2. There is not any option to reflect the deductions made from IPC’s that includes Retention Money, Mobilization Advance, Income Tax and furthermore the effect of exchange gain or loss.

3. The double entry is not reflected in a single voucher that consist of both debit and credit side of employer ledger.

 

General:

1. The software is basically for organizations engaged in trading business. The software basic structure does not support our nature of work (construction and engineering).

2. The transactions are not classified as per voucher types like cash payment voucher or bank receipts voucher etc.

 

 I am working in a construction and engineering company. It has many subcontractors through which it carries out its activities. Please do guide me in implementing quickbooks in our company. 

QuickBooks Team

Re: How do I set up a retention account in Quickbooks Online?

Hello there, Waqar Ahmad.

 

Thank you for getting back to us and confirming that you're using the QuickBooks Desktop. Having a different interface will also have other steps. I'm here to answer your inquiries.

 

Follow the steps below in creating a retainage account, setting up a retainage item and adding them to an invoice.

 

First, here are the steps in creating Retainage account:

  1. Click List.
  2. Choose Chart of Accounts.
  3. Right-click on your mouse, choose New.
  4. Choose Other Current Assets and click Continue.
  5. Enter the necessary information.
  6. Click Save & Close.

Second, here's how to set up a Retainage item:

  1. Click Lists.
  2. Choose Item list.
  3. Right-click on your mouse and choose New.
  4. Select Service.
  5. Enter the name.
  6. Put a check mark on the This service is used in assemblies or is performed by a subcontractor or partner box.
  7. Select the appropriate accounts and fill out the necessary fields.
  8. Click OK.

 

Lastly, here's how to withhold retainage from an invoice:

  1. Click Customers.
  2. Choose Create Invoice.
  3. Choose the customer.
  4. Fill out the invoice fields.
  5. In the next available line of the invoice, select the retainage item you've created.
  6. In the RATE column, enter the amount of the retainage as a negative (-) number. If your retainage is a percentage, you must calculate this manually.
  7. Click Save and Close.

 

For your other inquiries, check out these answers.

 

Vendor Module:

1. You have the option to book sales tax withheld on your supplier's invoice. To in-depth information and the steps for setting up, you can refer to this article: Track sales tax on purchases from vendors. I also advise reaching out to your accountant for guidance.

 

2. Bill payments are connected to expense accounts so you will not be able to book it for income tax.

 

3. Yes, the option for the deductions like retention money, risk fund and others to reflect from the subcontractor’s IPC’s is unavailable.

 

4. If you've entered a bill for the items/services by your vendors, you can use Pay Bills to settle your payables. The Pay Bills screen doesn't have the field to allow you to enter the voucher number. 

 

5. For you to get the double entry format of the vendor bill and the payment voucher, you can create a check.

 

6. The system keeps the number of the transaction. It'll also prompts a message once it's a duplicate number.

 

Customer Module:

1. There isn't an option to rename a customer's name as an employer module.

 

2. Since there is no option to reflect the deduction for IPC's, you may create a Credit Memo or a Journal Entry transaction. But, I suggest you consult with your accountant when entering the JE.


3. Invoice and sales receipt transactions only uses items and A/R or bank. If you'd like to have the double entry, you can enter them as Journal Entry. And for posting of your debits and credits, I recommend again seeking an accountant for an expert's advice to ensure there will be no problem with the books in the future.

 

General:

1. You can have the option to toggle your QuickBooks product to another QuickBooks edition. To change it to construction business type, follow the steps in this article: Toggle to another QuickBooks edition. Please also get in touch with your accountant so your accounts and items are set up properly.

 

2. Yes, the option to classify voucher if it's cash payment or bank receipt voucher is not yet available.

 

I know this is a lot of information to check, but that should get you on the right track, Waqar. Just add a comment if you have any follow up questions. We're always here to provide answers.Have a good one.

Level 2

Re: How do I set up a retention account in Quickbooks Online?

Thank you for your prompt response.

Really appreciate all your replies of my queries.

Let me check all your replies and apply on my quickbooks. After that I will give you feedback on whether my problem is resolved or have any further question for better understanding.

Thank you again.

Level 2

Re: How do I set up a retention account in Quickbooks Online?

Dear Miss  Honey Lynn

Thank you for detailed replies to all of my queries. Most of my issues are resolved now. Thanks to you.

I want an advice and guidance on another matter. I am planning to make a server so that I could keep the data of all of my projects here in head office. Projects are located on remote areas where internet speed is slow so we can't manage quickbooks online. That's why we are using quickbooks desktop version (Enterprise solutions 18.0). I will ask my project managers to make a backup of company file and send me data through USB. 

So if I get data every month from projects, will I be required to replace the previous data of that project on server? Emm. I want to know is there any option in quickbooks where I could update the whole projects data every month?

QuickBooks Team

Re: How do I set up a retention account in Quickbooks Online?

Hi there, Waqar Ahmad. 

 

I appreciate that you've done the steps given by my colleague and your concern was resolved. 

 

With regards to your additional question, yes, you have to replace the data so your data file will be accurate. You'll want to use the Intuit Hosting Program.  This allows you and your project managers to access your company file in different locations. 

 

The Community is always here to help you if you have further concerns. 

Level 3

Re: How do I set up a retention account in Quickbooks Online?

Please note that in Washington state, public works contractors have retainage withheld from their payments, HOWEVER, they are required to pay the full amount of excise tax, including both the amount received and the retainage, before the retainage will be released. https://dor.wa.gov/doing-business/public-works-contract-clearance  Therefore, as a means of recording the amount received and retaining the full amount of the contract to be billed on the excise tax, I have recorded this type of retainage as an asset account, that is intended to work as a sort of Accounts Receivable. If retainage in this situation is recorded against income, it would improperly record the revenue for excise tax purposes.  

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Level 3

Re: How do I set up a retention account in Quickbooks Online?

So you debit retainage account and credit AR as a manual entry after you record revenue/billing, right?

QuickBooks Team

Re: How do I set up a retention account in Quickbooks Online?

You can create the retainage invoice in advance, Teri Wilt.

 

Since you’re required to pay the full amount of excise tax, this will compute and record all taxable amounts. With this regard, there will be two invoices that you’re going to create. 


The first invoice should only use the retainage item with a positive amount. This is the advance invoice and will calculate the tax for retainage. 


The second invoice will have the service you’re providing and the retainage item with the negative amount. This will calculate the service tax amount and will offset the first retainage invoice you’ve created. 


The advance invoice will remain as an accounts receivable and will not be recorded against income until paid. You can just manually send this invoice once the service is completed and the customer is satisfied.


I’d also recommend consulting an accountant to make sure everything is recorded correctly. 

 

Be sure to visit the Community space if more assistance is needed.

Level 3

Re: How do I set up a retention account in Quickbooks Online?

If the income account reflects the amount received, rather than the full amount of the invoice, how will the excise tax be reported correctly, when the excise tax is calculated on the income from the paid invoice rather than the income from the advance invoice? I have a degree in accounting, and this answer does not make sense. Moreover, by recording two invoices, you are temporarily duplicating (doubling) the amount of income on the accrual basis, creating an inaccurate statement of profit and loss.  To file the excise tax, the income is calculated first, then reported to the state. If the income does not include the amount of the retainage, the income will be reported incorrectly to the state. https://dor.wa.gov/doing-business/public-works-contracts-qa-contractors It makes more sense to me to report payment amounts that do not include the amount of the retainage, or if the payment is recorded, to withhold from the deposited amount to a retainage asset account. This especially works better if there are multiple projects being worked on.  An alternative would be to set up a different customer account for the retainage and post the invoice for the retainage to the different customer account (Customer: WA DOR Retainage, for instance.)  Note: This applies to retainage on Washington State public works projects.  It may or may not apply to other types of retainage, such as merchant account withholding. 

Level 7

Re: How do I set up a retention account in Quickbooks Online?

I think that the answer provided here for retention was for cash-basis vs. accrual-basis accounting.  To do accrual-basis accounting in QB or at least to make revenue different than billing invoice will require some workarounds or extra steps as I see it.  My suggestion above might work to do this.

 

Debit retainage account and credit AR as a manual entry after you record revenue/billing, right?

 

 
 
Level 3

Re: How do I set up a retention account in Quickbooks Online?

A method I have been doing is to record the invoice payment as paid in full, but then when the invoice payment is deposited, to record the difference between the invoice full payment and the actual amount received in the bank as "cash back" from the deposit to the Retainage account since QBO allows you to select the account to put the "cash back" into.  After all, the customer did pay in full, but the funds were withheld by a third party or by order of a third party. On the other hand, if the retainage is held and released by the same customer, it would make sense to adjust the revenue. In public works contracts, the retainage is withheld by order of the state. In merchant withholding, the funds are withheld by the credit card merchant rather than the customer. 

Level 7

Re: How do I set up a retention account in Quickbooks Online?

I understand, but then you are recording a "payment" that did not really happen and won't be on bank statement to reconcile to.

Level 3

Re: How do I set up a retention account in Quickbooks Online?

Except that the payment DID happen, and the payment, less the retainage amount, is what actually was deposited in the bank - so it does appear on the bank statement, as well as in the bank feed. The bank feed is matched to the deposit rather than to the payment.  If it was a journal entry, it would look like the following if retainage is 5%:

Checking      9500                

Retainage     500

                       Undeposited Funds                  10000

Then once the retainage is paid back, another deposit is recorded to debit the bank account and credit the retainage account. 

Level 7

Re: How do I set up a retention account in Quickbooks Online?

 

Sounds like you are the recipient of the retainage vs. the one paying it, opposite of above?

 

"A method I have been doing is to record the invoice payment as paid in full, but then when the invoice payment is deposited, to record the difference between the invoice full payment and the..."

Level 3

Re: How do I set up a retention account in Quickbooks Online?

The retainage is initially withheld from the construction contractor's payment, the construction contractor receives the payment minus the retainage. This payment, less the retainage, is deposited to the construction contractor's bank account. When the project is completed, or the credit card merchant's conditions satisfied, the retainage is received by the construction contractor.  So the Retainage is Retainage Receivable for the construction contractor. 

Level 7

Re: How do I set up a retention account in Quickbooks Online?

Ok, that is original question then, thanks for confirming.  So that is why I asked about this in bold:

 

"A method I have been doing is to record the invoice payment as paid in full, but then when the invoice payment is deposited, to record the difference between the invoice full payment and the..."

 

When are you recording invoice as paid in full and based on what?  

I'm just saying it sounds like there is not a payment received for full amount at any point to record this entry from.  I guess is fine as a QB workaround if you do all the entries yourself and keep track.  That is just risky if ever anyone has to fill in for you since they would need to know to do that way.

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