and now we will learn how to manage and record retention from contractor invoices retention
for contractors is an amount or percent deducted from the total of each individual
progress invoice during the project life of the contract the total accumulated retention from all
invoices on the project will be paid at the end of the project you must account for the changing
balance of the retention for each client or job and account for the total retention receivable
from all clients in total you must clearly list the retention amount on each invoice so how are
we gonna do that well here's how we set up for that we create a retainage receivable account to
record the total that is owed from all clients specifically for attention from the invoices
now we can go ahead and do that now okay list chart of accounts account new we learned how to
put new accounts this one will be author current asset other current asset and then click continue
now the name of it will be put in capital letters retention receivable because you will receive this
money in the future from your clients after the entire contract is done so now we did the first
step of the setup the second step is to create an item on the items list that is a discount type of
item now usually the retention is a certain percent of each invoice and in our example
we'll make it 5% so it has to be a discount type of item because that's the item that you would
put on an invoice that would decrease the entire invoice by a specific percent that's why it has
to be a discount type of item and we can call it retention from invoices okay so now we click list
item list and then we click item new and then this will be a discount type of item discount
and we call it retention from invoices and the clients will know that that is the ax-cut that
is the item that's listed on the invoice that shows the decrease of the total invoice by five
percent that the client will hold until the end so the account is the other current asset that we
just made retention receivable so every time we put this item on an invoice this is the account
that will go up by five percent of the total of that particular invoice and the percent we just
put well we actually have to put the number five with a percent sign because the discount
could be either a money amount or a percent so we put five and the % so QuickBooks knows it's
five percent and not five dollars click OK and now we've done the second step to set up for retention
now we should put the retention report in the icon bar and the retention report is really an edited
version of this report sales by item detail that's because this retention is an item and we want to
see only the invoices and only the retention amount only that item so here's how we do that
from the main menu we click reports sales sales by item detail and we push a for all
now there are many others but what we have to do is filter this report just for the retention
item and then we have to correct its title calling it retention receivable report so
the way to do that is to click the top left and then click filter and then filter click in the
list of filters and type the letter I on your keyboard so that it Scrolls down to this choice
item so again let's back up a little open up the sales by item detail reports sales sales
by item detail then customized report filter click in the list of filters put AI for items
click item now the item we're filtering it by is this one down here it's connected to
the it's the discount item where is it there it is discount retention from invoices that's the
only item that's going to show on this report and only invoices that have that item listed
will show up when I click OK none of them show up because we haven't recorded any retention
yet let's edit the title in the header footer so we can call it retention receivable report
retention receivable report so this report will show us exactly how much is the retention for
each individual client and in the trial balance we'll find the current asset the total retention
receivable from all clients together now let's look at an example and now let's pin it up in
the icon bar click view add sales by item detail to the icon bar and change the title retention
do from clients and that's what it'll look like on the icon bar and when we click here we can open it
and see the retention from each individual client each individual invoice by each individual client
it's great and now let's invoice each individual month let's imagine January 31 we finished 25% of
the job and according to the contract bill 25% of the client on an invoice less the retention let's
see what it would look like we open the invoice make sure you choose the date of the invoice which
is the date you finish the first 25% make sure you don't only choose the right customer but the right
job under the right customer and make sure that you choose the right estimate for that particular
job this is exactly as we learned before except in this case we're telling QuickBooks that we
only completed 25 percent of this estimate and QuickBooks remembers that the original
estimate was a hundred thousand so therefore this invoice should be twenty-five thousand it means
that twenty-five thousand out of a hundred thousand regarding the work on the contract
has been complete however you're not going to ask them to pay 25 thousand because remember
you have retention which is five percent of the invoice so the invoice is 25 thousand because it
represents 25 percent of the work finished but from that we're going to list on the invoice
this deduction of 5 percent which is $1,250 from this particular invoice for retention that the
client will pay only at the end if the contract is correct and properly satisfied now look what
happens when we click Save and close if we open the retention report we see just four Kirschbaum
you can see that Kirschbaum owes us 1250 in total retention for the entire contract if we open up
the trial balance you can see that the account called retention receivable that we created is
also equal to one thousand two hundred and fifty dollars because in the trial balance it represents
all the retention from all clients regardless now let's build them for February 28th and see
what happens same thing invoice same client and job same estimate and same 25% if you watched
our earlier videos you'll be able to follow this quickly and you can see this is also 25,000 out of
the hundred thousand but don't forget to put the retention on it and that means that's another 12
1250 save and close oh oh you got to put the right date because it was February 28th that
we completed the second 25% notice the invoice remembers were up to 50% now of the job so now
when we open the retention report you can see that there have been two invoices for Kirschbaum at
Woodberry here for Kirschbaum at Woodberry you can see there have been two invoices of which
1250 was withheld on the January 1 and 1250 was unbilled and withheld for February 28th actually
the date from this invoice the first invoice the date should really be the 31st sorry about
that okay who cares but when we go to the trial balance the total retention from all clients is
up to 2,500 let's practice this because of that little mistake by doing the next invoice March 31
the next invoice is March 31 of the Kirschbaum Woodbury job against the same estimate for the
same 25% and here we are and don't forget to put the retention receivable which is also 1250
so when we go back to the retention report we see for the Kirschbaum Woodbury job there have
been three invoices that we retained money 5% each and these are the money amounts by the way if you
double-click III don't know why the invoice is not keeping the date but anyway double double check
that the date of the invoice is according to the billing of the contract but notice when I double
click and open it up you can see that only 1250 is the retention it's a negative 1250 but only
the retention amount is list of that particular invoice is listed on the retention report now the
interesting part happens at the very end of the contract April 30th April 30th we make another
invoice for Kirsh bound at Woodberry against the last part of the estimate for the remaining and
final quarter 25% we make sure again that we try putting April 30 on the debtor - what's going on
there but when we put their retention ok that 1250 save and close now look what happens if we
open the ok if we open the retention receivable report we see these are the invoice numbers and
dates that were built to Kirschbaum and this is the amount of retention on each of those invoices
that means that there's a total of 5,000 retained now before we ask Kirschbaum to pay us the 5,000
we're going to look at the report that we learned about earlier job progress invoice vs. estimate
and we can see for the Woodbury job even though a hundred percent of the work has been done and
technically a hundred percent of the work has been billed the only reason it says 95 percent
is because we withheld 5% for retention so if you open up each invoice the first invoice had
25% complete but it decreased it by 5% of that the second invoice showed another showed we're
up to 50% complete the other invoice showed up to 75 percent complete and the last invoice showed
that we were up to a hundred percent complete so why does the report say 95% complete because
5% of it is sitting here in this retention receivable report and 5,000 total retention
for one client is all we have and that's why right now retention receivable and the trial balance is
5,000 the total that caught all clients oh us for that and when it's time to ask Kirschbaum
to pay for the retention all we have to do is print this report if we print this report and
we give it to Kirschbaum the client will be able to see the dates the invoice number and money
amount retained from each invoice this way the client can open up the copy of that invoice to
verify that that was the amount of retention properly calculated and listed on each of the
past invoices that we gave him so that he can check that this retention receivable report is
correct and pay the 5,000 so don't forget when the contract is over give your client the report as
the bill as the invoice that request the payment this way they can verify everything now I have to
do another example and make a vital point if you put more than one income item on an estimate you
will need a subtotal item on the invoice to pop properly calculate the retention this is because
the retention item only calculates a percent of the item directly above it on the invoice we have
to go and do that now it is very very simple but you'll need to do this watch list item list item
knew the type of item is subtotal and we can just basically call it sub total if you think
of a name that better suits you you can go ahead and use it but watch how it's used in the example
and this example will bring everything together regarding the ideas of retention on January 1 we
made a contract with Brown company for Lily in court 30,000 in carpentry and 20,000 in
electrical work five months no money down invoice 25% eat each 25% complete so each month whatever
and whatever moment we finish 22 the next 25% we send the bill and the retention is still 5%
so those are the terms and by the way don't worry because I already put the job and the
estimate or into the computer behind the scenes off camera to save time so the first thing we're
going to do let's go back to the terms and find out what they were again here okay actually the
terms were down here okay the okay January 1 for 30,000 of carpentry and 20,000 of electrical work
now we can open the estimate okay we go down to Lillian quart here's the estimate you see let's
just expect it's 30,000 in carpentry and 20,000 and electrical work and 50,000 overall so when
we make our first invoice on January 31 make sure we choose January 31 we choose the Lillian
quart job for brown we choose the only estimate available for that job and again we're doing only
25 percent complete in this example now notice it automatically calculates twenty-five five percent
of the total estimated carpentry and the total estimated electrical work now look at the problem
if you choose retention it's only going to show you five percent of the item directly above it
that's why you cannot put this item here you must put the subtotal first then under the subtotal
put the retention now the retention reflects 25% of the higher in voice not just 25% of the item
above it click Save and close now when you look at your retention report okay I don't know wha
okay look at this okay it's not sorted by customer but you can you can see that for brown and Lilly
in court you can see this now what you can do on this report is filter by name and of course if you
studied how to edit reports filter by name and you want this specific job Lilly in court click OK now
you have only the invoices that have the retention item for Lilly in court and you can print this and
send it to Brown company for Lilly in court when this accumulates the total retention one very last
thing when you open your trial balance why is retention receivable 5625 retention receivable
in the trial balance represents all the retention that is owed to you from all your clients together
and if you double click you can see each invoice and each date and number and each retention amount