QuickBooks Tip-Tracking Retainage Payable to Subcontractors

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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