In the consulting business, retainers are received from clients for future work on projects or on-going consulting services. How to handle this for accounting purposes is an important concern.
First of all, if the consulting business accounting system operates on a cash basis, the receipt of a retainer would be recorded as income even through no work has been done yet to be applied against the retainer received. Therefore, a system outside of the accounting system, perhaps a spreadsheet, would monitor hours worked and applied against the retainer.
If the accounting system is an accrual system, the initial receipt of the retainer is recorded as Unearned Revenue. This means that the receipt of the retainer does not generate income. Work performed and invoiced against the retainer is when the income is earned. Once work is performed, invoices can be created and applied against the retainer based on how work is charged: per hour, flat rate, etc.
If charging customers by the hour, one could make use of Quickbooks timesheets to monitor time charged against a project and applied against an already received retainer. This will help keep track of the work performed as well as know how much of the retainer has been used.
Keep in mind, if a retainer has not been fully exhausted, the remaining balance would be a liability for the company and owed back to the customer.
If your business accepts retainers and is unclear how to handle them, contact Liberty Financial for more information.
