There are two possible ways to track retainage (retention) that you owe to your subcontractors; one method utilizes a Sub-Account of Accounts Payable, called Retainage Payable, and the other method utilizes an Other Liability Account, called Retainage Due to Subcontractors. Please review the setup and use of both methods, and choose whichever one seems more appropriate for your use.
You will need to inform your accountant of this at year end, so he or she, may make the necessary Journal Entries.
Method 1: Retainage as an Accounts Payable Sub-Account
Accountants tend to really like this method, but, it is a two-part process for the person actually doing the billing, which means that it’s error prone, simply due to normal day-to-day distractions.
From the Lists menu, choose Chart of Accounts
- From the Chart of Accounts window, click the Accounts button (lower left), and choose New
- Choose Accounts Payable as the Account type
- Enter an Account Number
- In the Name Box, enter Retainage/Retention Payable
- Click on the Subaccount of box, and choose Accounts Payable
- In the Description box, enter Retainage/Retention Payable on Contracts
- Click OK
Deducting Retainage/Retention Payable on a Vendor/Subcontractor Bill
If you have created a Purchase Order for this subcontractor and are now receiving his first progress billing, choose Vendors, and Receive Items with Bill, and if you have not created a Purchase Order, simply choose Enter Bill.
Select the Subcontractor from the drop down list; change the date, enter a Reference Number, the total amount of the bill, select terms, due date, and enter a memo if applicable – select either the Expenses or Item tab, and pull in the appropriate Item Code or Expense account associated with the vendor bill, and select the Customer: job. In the next blank line, again, pull in either the Item Code or Expense Account, enter the retention as a negative amount, in the memo field type in less retainage held, choose the Customer: job from the dropdown list.
Sample 1 below shows a sample bill created from a Purchase Order using the Item tab:
Sample 2 below shows a sample bill created using Enter Bills and the Expenses tab:
Recording Retainage Payable
Select Enter Bills; change A/P Account from Accounts Payable to Retainage/Retention Payable. Select your subcontractor; enter date of original subcontractor invoice, in the Ref. No., input the invoice number followed by, –R to indicate Retainage/Retention, enter amount due, change your terms to reflect when you will pay the retainage, select either the Item Code or the Expense account, and select the job.
Sample 1 shows a bill for retainage entered using the Items tab:
Sample 2 shows a bill for retainage entered using the Expenses tab:
Method 2: Retainage Payable as an Other Liability Account
This is a simple one-step process for the person actually doing the billing, and at the end of the year, the accountant will need to do a Journal entry to move the dollars for tax return purposes.
From the Lists menu, choose Chart of Accounts
- From the Chart of Accounts window, click the Accounts button (lower left), and choose New
- Choose Other Liability as the Account type
- Enter an Account Number
- In the Name Box, enter Subcontractor Retainage/Retention Payable
- In the Description box, enter Retainage Payable on Contracts
- Click OK
Setting up Items to Deduct Retainage Payable
- From the Lists menu, choose Item List
- From within the items List window, click the Item button (lower left), choose New
- In Type box, select Other Charge
- In the Item Name/Number box, type in 92 Less Sub Ret
- In the Description box, type in Less Subcontractor Retainage/Retention
- In the rate box, leave the amount set to 0 (you cannot use percentages in the detail of the bill) in the
- Account box, select the account used for Retainage Payable on Contracts
- Click OK to create the new item
NOTE: If you have different flat rates of retainage (retention) that you use, a separate item can be created for each of them using the rate in the Item Name|Number.
Deducting Retainage Payable on a Vendor/Subcontractor Bill
If you have created a Purchase Order for this subcontractor and are now receiving his first progress billing, choose Vendors and Receive Items with Bill, and if you have not created a Purchase Order, simply choose Enter Bill.
Select the Subcontractor from the drop down list; change the date, enter a Reference Number, the total amount of the bill, select terms, due date, and enter a memo if applicable – select either the Expenses or Item tab, and pull in the appropriate Item Code or Expense account associated with the vendor bill, and select the Customer: job.
Sample 1 shows a deduction for retainage using the Items tab:
Sample 2 shows a deduction for retainage using the Expenses tab:
While this is a much more simple process than Method 1, it will not reduce total expenses or Cost of Goods Sold, on a Profit and Loss Report. You will need to inform your accountant of this at year end, so he or she, may make the necessary Journal entries.
Recommendations:
Create a copy of your actual QuickBooks company data file and experiment with each of these methods to determine which is the right method for your company –and discuss this with your accountant so that they are aware of what you are doing!
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As a business owner there can be several different situations that you encounter where you might need to include a long legal disclaimer or explanation when you sell a specific item, offer special discounts, provide warranty disclaimers and information or explain your payment requirements when bidding on a job or even invoicing a customer.
There are four different methods for addressing this issue; the one that you choose will depend on what makes the most sense for your business:
- Items
- Template
- Letters Function
- Outside of QuickBooks
- Using Items to add long disclaimers – If the additional information needs to be included when a specific product is sold, that information can be included in the description OR you can create a new item with a zero sales cost for the purpose of adding the information to a Purchase Order, an Estimate, or an Invoice. The advantage of creating a separate item is that you can place the disclaimer item where you would like it on the form; right after the item it relates to, or at the bottom of an Estimate form. Later, you can delete it for billing purposes – as long as both you and your customer have a copy of the Estimate that contains the detailed information.
- Modifying the Form Template to include long disclaimers – If the disclaimer is long and you have the same disclaimer for every Estimate you create, for example your billing terms, and would like to make it a standard part of your form, using the Long Text Disclaimer section on the template itself may be the best solution. Choose Lists -> Templates -> select form -> Edit. The text can be entered and then the font size and placement can be adjusted using the Layout Designer.
- Using the QuickBooks Letters function – If the disclaimer is exceedingly long, after you create the form create an accompanying Letter in QuickBooks. Access the Letters function from the Customer Center by clicking on the Word option. Use this method with option with option 1 or 2 above to indicate that additional information is included on a separate page.
- Outside of QuickBooks – Depending on what needs to be included, it might make more sense to print the disclaimer on the back of the form. It would also be possible to use this method in conjunction with option 1 or 2 to state something along the lines of “see additional disclaimer information on the back of this form” to include a reference to the information without having to actually include it on the form.
A reader asked the following question:
Do you know of a good method for indicating or tracking that a vendor bill is approved for payment?
Answer:
Technically, the bill should be approved before it is input into QuickBooks; and generally indicating on the front or face of the document/purchase order/voucher/vendor invoice or whatever you happen to call it, is usually the relied upon method.
1. Purchasing inexpensive “custom printed stamps” is probably one of the easiest ways in which to start the process.
When ordering custom made stamps you can include lines with places for accounting to approve the document signifying that the invoice had all pertinent documentation attached, that the dollar amounts matched, and the date that the invoice was received. Be sure that there is another line or place for the owner to sign off.
2. Another valuable stamp is one that is made for costs that are to be passed along to the customer.
If a vendor invoice has costs that have to be passed along to the customer, purchase a stamp that says “Invoiced Customer ____________”, you can then stamp the vendor bill and insert the customer name on the actual invoice and mark the Invoice as “To Be Billed” in QuickBooks.
3. If all of the above sounds like too much work and “paper shuffling” and you fear that some vendor invoices will become lost in the process, then try this simple method.
As vendor invoices are received, enter them into QuickBooks using the Enter Bill function. Use the memo field to indicated Purchase Order Numbers, discrepancies, and other important information; such as if it is billable to the customer. Use the “To Be Billed” function as necessary.
Generate an “Unpaid Bills Detail Report” (QuickBooks Reports Menu -> Vendors & Payables -> Unpaid Bills Detail) that has been modified to include the “memo” field. Provide this report, along with the current bank balance, and give it to the business owner. He/she will then circle bills that they wish to have paid and return the report to you. You generate the checks; give them the checks to be signed along with the report; now indicating the bank balance after you have generated the checks.
