Question: What Is Retainage Where Is The Amount Specified And Why Is It Used?

What does less retention mean?

Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client.

The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract..

What type of account is Retainage?

For example, Retainage Receivable (money owed to you) should be set up as an Other Current Asset in your Chart of Accounts. Retainage Payable (money you owe) on the other hand, should be set up as an Other Current Liability account.

What is accounts receivable and how does it work?

Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivables are listed on the balance sheet as a current asset. AR is any amount of money owed by customers for purchases made on credit.

When should Retainage be paid?

Monies are to be paid to the contractor within 30 days of the contract being completed. Retainage is not deducted from the part of a progress payment that includes the cost of materials or equipment stored on the job site.

Is Retainage an asset?

You report retainage on the balance sheet as a current asset.

What is a retention money?

What is retention money? Retention money is an amount held back from a payment made under a construction contract. … It is generally held to ensure that a contractor performs all of its obligations under the contract, and is then released either on practical completion or after the end of a defects notification period.

What is a punch list item?

A punch list (also called a snag list, deficiency list, or punch out list), according to the online Business Dictionary, is “a document listing work that does not conform to contract specifications, usually attached to a certificate of substantial completion.” Put simply, it is a list of to-do’s that need to be …

How do you calculate retention money?

So the Retention is calculated at 10% of each progress payment until the total retained is equal to 5% of the Contract Sum. The Principal’s right to retain amounts from progress payments, and the Contractor’s entitlement to the release of their money is generally outlined in the agreement between the parties.

What is retention in accounts payable?

Retention is important for general contractors that subcontract portions of their jobs and withhold full payment of invoices received until the completion of the job. The retention amount is calculated and recorded for each job number, cost code and/or cost type distribution entered for an invoice.

How do I enter a retainage in Quickbooks?

How do I set up a retention account in Quickbooks Online?Click Accounting, then go to Chart of Accounts.Click New.Click the Account Type drop-down arrow, then choose Other Current Assets.Click the Detail Type drop-down arrow, then choose Retainage.Enter a desired name, then click Save and close.

Who holds Retainage?

A construction project’s retainage is determined by the construction contract between the parties, where the parties will agree to withhold $0 withholdings, or to some percentage (usually, 5% or 10%). Some states regulate how much can be withheld from contractors, and other states don’t.

How do you account for retention?

How to set up and record a retentionRecord the full value of the invoice less the amount of retention using the invoice date.Record the value of the retention as an invoice using the due date of the retention.Post the customer receipt for the full amount less the retention.When the retention is paid record the remaining receipt.

What is the difference between retention and retainage?

Retainage, also called “retention,” is an amount of money “held back” from a contractor or subcontractor during the term of a construction project. This is a very unique practice specific to the construction industry, but within the industry, it’s extremely popular.

How do you record retainage payable?

Recording Retainage Payable No., input the invoice number followed by, -R to indicate Retainage/Retention, enter amount due, change your terms to reflect when you will pay the retainage, select either the Item Code or the Expense account, and select the job.

Can you Lien for Retainage?

Consider filing a lien. Most retainage statutes in the private sector will serve the sole purpose of preventing abuses by providing punishments if retainage is held without authorization or if an unreasonable amount of retainage is withheld. Filing a mechanics lien within your deadline can include the retainage amount.

What is the purpose of retainage?

Retainage is a portion of the agreed upon contract price deliberately withheld until the work is substantially complete to assure that contractor or subcontractor will satisfy its obligations and complete a construction project.

How long can a retention be held?

The first payment provides half the money held upon the subcontractor’s completion of their portion of the work. This is known as the first moiety of retention. The second moiety of retention is paid once the defects liability period has ended. This period can last anywhere from six months to over a year.