How to Book Retainers in QuickBooks

I am confronted with a 2009 virtual equity account problem that seems to be a real challenge. It has to do with an amount of cash that carried over from 2008 into 2009 in a “retainer-type” model and is further complicated by the fact that we are operating on a cash basis.  Let me explain:

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.

Here are the steps for solving the problem:

  1. Go to Lists > Chart of Accounts and create a new currently liability account called something like retainers or customer deposits
  2. Go to Lists > Item List and create a new service item called retainers or customer deposits mapped to the account you created above
  3. Prepare a journal entry moving the $671 from the equity (debit) account to a new current liability account you created above (credit)
  4. 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.

Thanks very much for your response.  Your procedure makes a lot of sense and I’m certainly going to try to fix it following the procedure. However, the only difficulty I see is the journal entry moving the $671 from the equity account. That 32000 equity account is that virtual equity account which QB didn’t allow me access or force an entry in to before, trying to fix the other equity issues. I don’t know if there is another work around if I encounter the same issue.
You can use the virtual Equity account in a journal entry, you just get a warning when you do.  This time of year, all nonprofits that are using QB correctly are making journal entries with that account to move their fund balance to the correct accounts.

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This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.

Ruth Perryman - QuickBooks Specialist Written by +Ruth Perryman

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