Houston, we have a client! (I wish I had the time to post that somewhere more exciting! One of these days I'll find time to become active on this board again - I miss it! Just too many things going on...)

I'm still trying to brush up on my understandings of Accounting and Bookkeeping. This question is about accounting for retainers. I was surfing the QuickBooks community to find an answer and came across this:

"If you collected $1,000 retainer from your client, invoice it, but use an "item" on your item list where the "Retainer" [current liability] account is credited when the item is billed. The transaction would be:

DR: Cash $1,000.00
CR: Retainer $1,000.00

When you do work for the client, you'll invoice the work, and book the invoice to the AR as normal. However, instead of collecting cash payments against the AR, you offset it against the Retainer account via a barter transaction, thru a cash type clearing account.

Say you did $300.00 worth of work, then bill the work, and the transaction would be:

CR: Income $300.00
DR: AR: $300.00

Then do a receive payment, but deposit to the clearing accout. Note that no cash is received. It'll look like this:

DR: Clearing account $300.00
CR: AR $300.00

Then do a JE as follows:

DR: Retainer $300.00
CR: Clearing account $300.00

The result is $300.00 is used up in the retainer account, with $300.00 booked to Income. "

I'm confused - is there a reason you wouldn't Credit Income and Debit the Retainer account directly? Maybe it has something to do with the way QuickBooks handles invoicing?

Any help here would be appreciated. I'm so excited to be at this stage in the game!

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Cassi
More Time Virtual Assistance, LLC What could you do with More Time?

The above method seems like a round about way of doing it. Too many steps.

Here is what I do to receive a retainer or deposit (that I have not invoiced for):

Go to "receive payments" and post the payment to the customer account, leaving an open credit on their account.

At the end of the month when I invoice the client I go back to "receive paments" and apply the deposit to the invoice. Make sure to set your invoice to show payments received. The invoice will then show the amount invoiced, the payments (deposit) received and the additional balance due if any.

If you invoice for your retainers, I would use this method:

Create invoice, using item called "Retainer", this goes to an Income account called "Retainer Income".

When you receive the payment apply it to the invoice, this will bring the customer account balance to zero.

At the end of the month, invoice your client and then issue a credit memo to reflect the amount of the retainer received, making sure to use the "Retainer" item on the credit memo. Apply the credit memo to the invoice. Doing this will reduce the amount in "Retainer Income" by the amount of the credit memo and increase the Income for whatever item you invoiced with.

If the client did not use the entire retainer for the month the difference will remain in "Retainer Income".

Hopefully that makes sense, it did in my head.

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Rebecka Melson ~ Virtual Business Services

I did a video tutorial that hopefully answers your question. You can view it here.

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Rebecka Melson ~ Virtual Business Services