Maintaining or withholding is usually a certain percentage, for example 10%, of the total contract withheld by the project owner in reserve to protect the interests of the owners. Storage is not held in a lump sum, but rather is kept at the specified percentage for the amount requested on each payment application. Your contract must state the terms, including the percentage, and when the withholding will be paid.
Contractors using QuickBooks often experience difficulties with storage / retention management; simply because the software does not have the means to handle it automatically.
Since QuickBooks does not have a built-in retention feature, like many of the more expensive design-specific software programs, QuickBooks users must initiate workflows and perform QuickBooks retention tracking found on each progress invoice.
Over the years, I have seen several work environments implemented by various contractors, their accountants and even their accountants, such as:
- Simply leave the withholding amount for each invoice in their open A / R.
- Only bill amounts on each line item for which they will be paid.
- Creating a customer called withholding susceptible and then making some smart journal entries each billing period to move the retainer from the original customer to the withholding customer.
- Using a QuickBooks voucher to withdraw individual invoices and map it to the chart of accounts as either an income account or a spending account.
- Creating another current asset account, called withholding (withholding) that can be received and using “Goods”, the money is automatically moved to this account on each invoice generated.
- Creating a sub-account of accounts receivable, called withholding (withholding), and then using goods and additional invoices, the withdrawal amounts of this newly created sub-account are moved to available accounts.
Each of these methods has its own drawbacks, but the first three (4) methods described cause most of the contractor accounting records problems, and are methods that I highly recommend you avoid.
The easiest method I know of is to track withholding as another current asset on your balance sheet – the Balance section; However, MUST come with your accountant and have him teach you how to make a journal entry that removes the amount from income.
How to implement this system:
- Add another current asset to your chart of accounts called withholding or withholding.
- Create another fee OR Service item on your item list called “Less Withholding”, map this to the account you created in Step 1 and in rate box entry -10.0%.
- Create another other charge or service item on your item list called “Retention Lapse” and map it again to the account you created in Step 1.
- Make sure you have one Subtotal item in your item list.
- Create your full invoice or progress invoice for the full amount before any detention is withheld. Select yours on the first blank line at the bottom of the invoice Subtotal item and then yours Less detention The post balance on the invoice that goes to A / R is now the amount after withholding and the withholding dollars are moved to the other current activation account.
- You can generate reports on the hold receipt account that shows who is owed to you by going to your account plan, clicking on the account created in step 1 to highlight it, clicking the Report button at the bottom of the window, and selecting QuickReport .
- When you are ready to invoice for withholding, create a “normal or regular” invoice using the Maturity Proof item and enter the relevant dollar amount from the report.
As I said earlier in this article, this is the easiest method – because just adding two more things to the bottom of your invoice and all the math and work is done for you; However, the withholding amount you deducted will appear in your earnings and loss report in your income account (even if you run the reports on a cash basis), which requires a journal entry to be created to remove this from your income. You need to consult your account to get the right entry.