Tracking Retainage Payable through QuickBooks

QuickBooks is the most powerful, versatile accounting software suitable for both small and big business concerns. Upgrading to QuickBooks accounting software gives greater control in managing the company accounts. It allows firms to streamline their accounting operations. In addition, it also allows greater collaboration between the accounting personals leading to increased efficiency in performing accounting functions.

Companies who have to routinely keep track of retainage payable to subcontractors can greatly benefit from the QuickBooks accounting software. There are two ways that the software can allow you to track retainage payable to the subcontractors. One method uses a liability account known as Retainage Payables other account type to keep tabs on the retainage. While the other method utilizes Account Payable Account Type for the same purpose.

Although, the name of the two accounts seems similar, yet the underlying procedure to record the retainage payable is different. Here you will discover the steps you need to take to monitor retainage payable using both the methods.

Tip: You should create a test company account and record that retainage payable using both the methods. Your accountant will be able to tell you which of the two methods to use.

Method 1: Retainage Payable Account as Other Accounts Type

This is more simple method of the two. The person responsible for making an entry in the accounts will have to inform the accountant at year-end to pass the necessary journal entries.
Note: Please note that the expense or cost of goods sold account is not deducted upon entry of the retainage payable account. The correct value is reflected on the profit and loss account only after the journal entry is made at the end of the accounting year.
Step 1a: Choose Chart of Accounts from the lists menu.
Step 2a: From the Chart of Accounts menu, choose the accounts button and click new.
Step 3a: Now, select Other Liability Account when prompted to choose the Account type.
Step4a: Enter a unique Account Number for the retainage account. In the Name box, input Subcontractor Retainage Payable. You can also enter an appropriate description of the account in the Description box. Now, click Ok.

After following the above steps, a Retainage Payable as Other Account Type would be created in the QuickBooks accounting software. You should now set up a Retainage item in QuickBooks. Here are the steps that you need to perform to create the Retainage item.
Step 1b: Choose Item List from the Lists Menu.
Step 2b: From the Lists Menu, select the Item button and click New.
Step3b: Select Other Charge when prompted to select the Item Type.
Step4b: Input appropriate name and description of the item in the name and description box respectively. For instance in the name section you can type Deduct Sub Ret while in the description box you can enter Deduct Subcontractor Retainage.
Step5b: Leave the amount in the rate box to 0.*
Step6b: In the account box, you can input Retainage Payable on Contracts. Finally, click Ok.
* If you have different rates of retainage, you should create a separate retainage items and input the required rates in the Rate section.
The above steps detailed how to create a retainage item in QuickBooks. In order to deduct Retainage Payable from a subcontractor account you need to perform these steps.
Step 1c: Select Vendor and Receive Items with Bill from list if you have created a Purchase order for the vendor. Otherwise, just click on Enter Bill. The figure below shows a snapshot of Enter Bills screen.

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Step 2c: Now, select the subcontractor from the list.
Step 3c: Enter the required information in the date, reference number, bills due, amount due, and terms of payments. Afterwards, click on Bill Received Checkbox on the upper right corner of the box.
Step 4c: Select either the expense or the item tab and input the Expense account or Item code associated with the vendor bill. Make sure to enter the appropriate content in the customer job section.

Method 2: Retainage Payable as Account Payable Type

The second method involves more steps to record retainage due to contractors. Still some accountants prefer this method as the total expense account is deducted automatically upon making an entry in the accounts.
Step 1a: Choose Chart of Accounts from the lists menu.
Step 2a: From the Chart of Accounts menu, choose the accounts button and click new.
Step 3a: Now, select Accounts Payable when prompted to choose the Account type. Note that in the previous method we used Other Accounts payable as the Account type.
Step4a: In the Name box, input Retainage Payable. You can also enter an appropriate description of the account in the Description box. Enter a unique Account Number for the retainage account. Now, click Ok.
After following the above steps, a Retainage Payable as Account Payable Type would be created in the QuickBooks accounting software. In order to deduct Retainage Payable from a subcontractor account you need to perform these steps.
Step 1c: Select Vendor and Receive Items with Bill from list if you have created a Purchase order for the vendor. Otherwise, just click on Enter Bill. The figure below shows a snapshot of Enter Bills screen.
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Step 2c: Now, select the subcontractor from the list.
Step 3c: Enter the required information in the date, reference number, bills due, amount due, and terms of payments. Afterwards, click on Bill Received Checkbox on the upper right corner of the box.
Step 4c: Select either the expense or the item tab and input the Expense account or Item code associated with the vendor bill.
Step 5c: Enter the required retention amount.
Step 6c: Now, change the A/P Account type from Account Payable to Account Payable Retainage Payable.
Step 7c: Again enter the required information in the date, reference number, bills due, amount due, and terms of payments.
Step 8c: Select either the expense or the item tab and input the Expense account or Item code associated with the vendor bill.

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