Tracking retainage in quickbooks online

Retainage, also known as retention or holdback, is a common practice in construction contracts where a certain percentage of the payment to a contractor is withheld by the client until the completion of the project. It serves as a form of security for the client to ensure that the contractor fulfills all contractual obligations and addresses any defects or issues that may arise during the project. The retained funds are typically released to the contractor after the project is completed, subject to the client's satisfaction. Retainage is an important aspect of construction contracts as it provides a financial incentive for the contractor to complete the project on time and to the required specifications. It also encourages the contractor to address any issues or defects promptly, as the released funds are often tied to the client's satisfaction with the final outcome.

From an accounting perspective, even though you are not entitled to invoice for your retainage right away, you typically should be recognizing the amount retained as sales. As you probably recall, every accounting entry has two sides, a CREDIT and a DEBIT. (NB: Credit doesn’t always mean ‘go up,’ and debit doesn’t always mean ‘go down’). For retainage, the CREDIT is a sales/revenue item - the revenue has been earned, it’s just not being paid out by the client (yet). The DEBIT is not made to accounts receivable, since the client is not obligated to pay out the retainage yet; rather, it is customarily made to an Other Current Asset account with a name like Retainage. Said another way, the company will eventually be owed money, so it’s an asset, but it’s not owed now, so it’s not a receivable.

One last note: when retainage is reversed - ie, an invoice created to finally collect payment for the outstanding retainage - there is no sales component to that invoice. The sales have already happened (they were booked back when the retainage was created). The retainage invoice merely creates a CREDIT to Other Current Assets (decreasing OCA) and a DEBIT to Accounts Receivable (increasing AR).

Setting Up the Knowify Sync Correctly

When you are in the QB sync section of Knowify, you’ll see that we only prompt for one account when you’re setting up the retainage sync. That’s because the logic for setting the CREDIT (ie, sales) side of the transaction is already determined elsewhere; we only need to know the name of the Other Current Asset account you want to use for the DEBIT side of the push.

Please make sure that you’re selecting an ASSET account in the retainage dropdown when setting up the sync. An ‘Other Current Asset’ account is likely to be best, but a non-current asset account could also be justifiable if your projects are huge and take multiple years.

If you have any questions about how Knowify syncs retention to Quickbooks please reach out to your CSM or [e-mail] for assistance.