How to account for retainage
A problem-to-playbook guide to recording retainage the right way - so your receivables, cash forecast, and balance sheet all reflect what’s truly collectible.
Why retainage needs its own account
Retainage is revenue you’ve earned but can’t collect until the job completes. If you leave it in ordinary accounts receivable, your AR aging overstates collectible cash and your forecast is wrong. The fix is a dedicated retainage account on each side - receivable and payable.
The retainage journal entry
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable (net due) | $108,000 | |
| Retainage receivable (withheld) | $12,000 | |
| Contract billings (gross) | $120,000 |
Retainage withheld
retainage = billing × retainage_pct = $120,000 × 10% = $12,000
The customer is invoiced for the $108,000 net due; the $12,000 sits in retainage receivable until release.
The steps
Handling retainage end to end
- 1
Set the rate
Define a retainage percent per job (or per line when it differs), typically 5–10%.
- 2
Split on billing
On each progress billing, post the net due to AR and the withheld amount to retainage receivable.
- 3
Withhold from subs
Mirror the treatment on subcontractor bills so you don’t release retention payable before you collect.
- 4
Reclass at close
Ensure the month-end balance sheet separates held retainage from current AR.
- 5
Release on completion
When the job is substantially complete, bill and collect the held retainage, clearing the account.
How Fintra does it automatically
Fintra splits every progress billing into net-due AR and retainage receivable, totals held retainage per job on the retainage report, and can reclass retention at close using each job’s percent - so the account stays clean without a side spreadsheet.
Frequently asked questions
How is retainage recorded in accounting?
When you bill a progress draw with retainage, you debit accounts receivable for the net due, debit a separate retainage receivable account for the withheld amount, and credit contract billings for the gross. This keeps the withheld portion out of ordinary AR until the job completes and it becomes collectible.
What is the difference between retainage receivable and payable?
Retainage receivable is what your customers withhold from your billings; retainage payable is what you withhold from your subcontractors. Both should be tracked in dedicated accounts so neither your collectible AR nor your payable balances are overstated.
When do you recognize retainage as revenue?
Retainage is part of the contract price, so it’s recognized as revenue under percentage-of-completion like the rest of the contract - the withholding affects when you collect cash, not when you earn revenue. It simply sits in a receivable account until the job completes and the retainage is released.
How does Fintra keep retainage accurate?
It splits every progress billing into net-due AR and retainage receivable automatically, totals held retainage per job on the retainage report, and can reclass retention at month-end close - so the held balance never drifts from the ledger.
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