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Don't overlook retainage



I've seen it done many times. Accountants progress billing without recording retainage.


Why is this an issue?


Two reasons:

1) You're understating receivables, in this case, retainage receivables. If the retainage is on a job in progress at year end, it's likely that you will either understate contract assets or overstate contract liabilities.


2) Your billings to date will be understated. This is crucial if the corresponding job(s) is in progress at year end.


So how do we avoid this issue?

Include retainage in your progress billings. If you're using QuickBooks, that might sound easier said than done. But, the process isn't all that bad considering how much time and energy you can save doing it right the first time!


1) Create a new account "Retainage Receivable"

2) Create a new item "Retainage Withheld." In the description box type in "Retainage." Next, select "Retainage Receivable" using the drop down list next to "Account" (this step ensures that the item will be recorded to the retainage receivable account). Then click OK.


When you're generating an invoice in QuickBooks:


1) Enter the total amount to be billed including retainage on one line.

2) On the following line, enter "Retainage Withheld" as the item and enter the retainage as a negative number under the Amount column and click save.


This should show "revenue" or billings for the gross amount (including retainage) but a receivable and invoice total for the net amount that excludes retainage. Retainage here will be recorded to the retainage receivable account. Now you've properly recorded retainage!


When it's time to bill the final retainage amount, enter the same item name "Retainage Withheld" and in the description write "Final Retainage," then enter the amount of total retainage as a positive amount and click save. This will offset the original debit(s) and zero out the activity. No more retainage!


Thanks for tuning! Hope to see you in the next lesson!

If you have any questions, please don't hesitate to reach out at ara@thewipreport.com.




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