Revenue, Accounts Receivable, and Retainage Receivable

Homework assignment!

Pull up your general ledger detail for revenue, accounts receivable, and retainage receivable and let me know what you see.

Don't have a retainage receivable account? Something might be off already. A lot of construction companies that use QuickBooks don't record retainage receivable until the punchlist is complete and it's time to send the final pay application. Retainage has been withheld from every pay application but you can't tell just by looking at the general ledger detail. Retainage only pops up on the final invoice, when the total amount withheld up until completion is billed.

That's not the way it works. You should be recording the total amount on the pay application to revenue. But, as we know that total balance will not be collected in the next 30 to 45 days. So how do you record the other side of the entry? You record the net amount (total billing on the current pay app less retainage withheld) to accounts receivable and the retainage withheld to retainage receivable.

Example time!

According to pay application #1 (1/15/26), the total billed for the period is $100,000, with 5% retainage withheld, or $5,000. If you record the pay application correctly through the invoice module, you will credit revenue for the total amount, $100,000 (shown as a negative below), debit accounts receivable for $95,000, and debit retainage receivable for $5,000. Now, when the project owner or general contractor pays you, they will pay the net amount, $95,000, which you will apply to their outstanding accounts receivable balance (2/25/26). Similar case for application #2 (2/15/26). The total billed for the period is $150,000 with 5% retainage withheld, or $7,500.

Now what's important to note is that we have retainage receivable on the books after two pay applications! Total retainage receivable is $12,500. This is what your general ledger detail should look like!

Thanks for tuning in!

Ara