How to Book Retainers in QuickBooks
1. We had a client in 2008 that gave us a sum of money as a retainer. We took that money and applied it against an invoice which was less than the amount that was paid which of course left a credit balance on that invoice. The next invoice was generated again was less than the amount “on account” which further reduced the credit amount.
2. We hit the end of the year and there was a credit balance of $671 on their account to carry over to 2009. Again, we are on a cash basis under which there are no receivables or payables from a “reporting” perspective. However, since we did have the cash, the system created a “Virtual Accounts Receivable”
account having a -671.00 balance (a liability). This action made sense. The system had to account for that money which we didn’t earn yet as of 12/31/08.
3. Because we had the $671 in cash at the end of 2008 the system took that cash and created the $671 virtual equity account 30300 in 2009.
We would like to get that $671 into revenue and out of equity for 2009 but I don’t see any way of doing it. On a cash basis, if I create another invoice for that client for $671, the receivable will not pick up that equity amount as payment for it – it’ll remain in receivables unapplied. Please note the $671.00 30300 Members Equity figure at the bottom of the attached Balance Sheet. Can you please provide a possible solution.
- Go to Lists > Chart of Accounts and create a new currently liability account called something like retainers or customer deposits
- Go to Lists > Item List and create a new service item called retainers or customer deposits mapped to the account you created above
- Prepare a journal entry moving the $671 from the equity (debit) account to a new current liability account you created above (credit)
- Create a $0 invoice with a positive line using a revenue item and a negative amount using the retainer item created above
When you receive a retainer in the future, enter a sales receipt using the retainer item. This will increase the retainer balance as well as cash once the deposit is made. As your client draws down the balance, create a $0 invoice as explained above. This will increase revenue and reduce the retainer balance.
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