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Many businesses collect up-front fees (or retainers) from their clients to be applied against future billings. In accounting terminology, these collected items are liabilities to the person who receives them until the income is actually earned. The following procedure demonstrates how QuickBooks uses invoices to record both steps of this process.
Important: This document lays out a simple method of tracking retainers. If you hold retainers, settlements, escrow, or other client funds, and you need to use client trust accounts in order to keep these funds separate from your general office funds, then you should review the more detailed instructions in the industry documentation for your industry or the one for "Legal Firms".
Before You Begin
The most important step to take before performing this procedure is to make a backup of your company files.
To record transactions that collect and apply retainers, create a liability account and several new items if they do not already exist.
From the Chart of Accounts, create an Other Current Liability account and call it Unearned Revenue or something similar.
- From the Item list, create the following items:
Item Type |
|
Description |
|
Account |
|
Service |
|
Retainer |
|
Unearned Revenue (Liability) |
|
Service |
|
Fees |
|
Fees (Income) |
|
Payment |
|
Payment |
|
None: deposit to checking |
|
Collecting the Retainer
When you first collect the retainer, create an invoice with a zero balance using two line items:
On the first line of the invoice, use the Retainer item with the positive amount of the retainer. This line will increase your liability in the Unearned Revenue account.
On the second line, use the Payment item, entering the amount received in the retainer. This is a negative amount that creates the zero balance invoice and increases your bank account.
Showing Income Earned
After the fees have been earned, create a second invoice with two items to record the earned income and decrease your liability in the Unearned Revenue account.
On the first line of the invoice, use the Fee Income item. This will be a positive figure and will show in your Fee Income account.
On the second line use the Retainer item, entering it as a negative number. This reduces the retainer amount in the Unearned Revenue liability account and zeroes out this invoice.
Note: The Unearned Revenue liability account contains a running total of all client retainers. One useful report that may be generated is the Transaction Detail by Account. In the report filters, select just the Retainer account, and then choose Total by Customer. This report will give you a running total of how much you owe in retainers. |
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To track commissions paid to employees:
- Set up a commission payroll item(s).
- Add the commission payroll item to the employees' records.
Once you have created a commission item, you can apply it to all of your employees, even if the amount (or rate) of the commission is different for each employee. You can set the actual amount or rate of the commission item on each employee's payroll record, or when you write a paycheck.
If you have different types of commissions that you want to track separately in your reports, use a separate payroll item for each commission type.
If you pay your employees on commission, you can set up one or more payroll items to track the commissions you pay.
Once you have created a commission item, you can apply it to all of your employees, even if the amount (or rate) of the commission differs for each employee. Set the actual amount or rate on each employee's payroll record, or when you write a paycheck. If you have different types of commissions that you want to track separately in your reports, Intuit recommends using a separate payroll item for each commission type.
Solution:
- From the Lists menu, select the Payroll Item list.
- From the Payroll Item menu button, choose New.
- Click Commission, and click Next.
- Follow the onscreen instructions.
If you need to go back to a previous screen, click Previous. |
