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Handling Retainers in QuickBooks

In the past 2 months, I have gotten 2 people that ask me how to handle retainers in QuickBooks software. I figured it might be time to make a post about this to help you out.

When a company asks for a retainer, this basically means that they want a lump sum of money up front and then once they do their billable work, they use the retainer to pay off those invoices. Here is the tricky part, the retainer given to you is not considered earned income. It is actually a liability as at the time you accepted the retainer – you didn’t do any work for it yet. So how do we handle this in QuickBooks?

The first step would be to create an ‘Other Current Liability’ account in your Chart of Accounts called ‘Retainers on Account.’ Then you want to create 2 items in your item list as Other Charge items. One that says ‘Pre-Paid Retainer on Account’ and one that says ‘Paid by Retainer on Account.’ When creating these items, you want to be sure to make them single sided items and have BOTH of them post to ‘Retainers on Account’.

Now it’s time to ask your customer for a $5000 retainer. Create an invoice to that customer and use the item ‘Retainer on Account’. Put in the amount as $5000.00. When they give you the check, receive it against the invoice as normal. This will put the $5000.00 into that liability account that you created.

Once you have done some work for this client and you have an invoice that needs to be paid, you can use that retainer money against that invoice. Pretend you did $1000.00 work of work. To do this, create the invoice for the work as normal and make sure it comes out to a total of $1000.00. Once you have all your items and prices in, on the last line add in the item called “Paid by Retainer on Account.’ In the amount column, put in a negative $1000.00 for the amount of the retainer that you are using against this invoice. This will mark the invoice as paid and pull $1000.00 out of that Retainer liability account and will also show $1000.00 of earned income.

Now, if you have multiple customers that you have retainers for and you want to see the balances individually, you can double click to get to the register of the Retainers on Account liability account. Right click on one of the customer names and run a QuickReport. Once you are on the report, you can modify to add the Debit and Credit column. Now you can see all the Debits & Credits (or Charges and payments) that have affected this customer’s retainer.

As always, if you need assistance, don’t hesitate to call!

About Alicia Fleri

I began my career with Presti & Naegele in 2005 after several years as a freelance QuickBooks trainer and business owner. I became a Certified QuickBooks ProAdvisor in 2004 and Advanced Certified in 2007. I have a passion for travel. My favorite travel destination thus far has been the island of Vava’u in Tonga. While there I explored the archipelago by sea kayak and snorkeled alongside Hump Back Whales. When I can’t get away, I spend time photographing New York and motoring around in my classic MG. afleri@pnatc.com
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