Retention is money withheld by the customer of a contract (project); protect the customer against incomplete or defective works. The retained sum is usually released to the supplier once the project ends or after the warranty period.
Assuming the sum withheld is at every stage of the progress claim. For a progress claim of $100,000 with 5% retention, the journal behind the sales invoice will be:
DR. Accounts Receivable $101,650
DR. Retention Receivable $5,000
CR. Sales $100,000
CR. GST Payable: $6,650
To record the retention in QuickBooks Online, first, you create a retention item (can be a service item) and link it to the retention receivable (a current assets account). Then, use it in the invoice with a negative value to reduce the invoice total (the objective is to reduce the receivable and not the revenue).
To view the retention receivable, you may run a report for the retention receivable account (from the Chart of Accounts) and group it by the customer to check the retained sum by the customer or for a job (if you are using the project feature in QuickBooks Online).
You may then issue an invoice to the customer for the retained sum once the project ends. The journal for the invoice:
DR. Accounts Receivable $5350
CR. Retention Receivable $5000
CR. GST Payable $350
QuickBooks Online is a small business account system suitable for small businesses and SOHO. Although it does not have a complex project accounting feature, it should be sufficient for basic project tracking.
- The letter of claim is not a tax invoice, and the retained amount has to account for the GST upon payment received or invoice issued, whichever earlier.
- To create an account in QuickBooks Online (QBO):
- Click on the Gear icon and select Chart of Account from the list.
- Click on the New button in the Chart of Account list to add an account.
- To create an item in QuickBooks (QBO):
- Click on the Gear icon and select Products and Services.
- Click on the New button in the Products and Services list to add an item.