Billing and Revenue Recognition With Retention
When you use retention, you can withhold a percentage of the billing amount until a preset ceiling is reached. The following scenario bills $10,000 with 5% retention, recognizes $10,000 in revenue, and releases the retention amount.
| GL Transactions | AC Transactions | |||
|---|---|---|---|---|
| Accounts Receivable | ||||
| Debit | Credit | |||
| 9,500(1) | ||||
| 500(3) | ||||
| Billed/Unearned | Billed/Unearned (c) | |||
| Debit | Credit | Debit | Credit | |
| 10,000(2) | 10,000(1) | 10,000(2) | 10,000(1) | |
| Revenue | Revenue (p) | |||
| Debit | Credit | Debit | Credit | |
| 10,000(2) | 10,000(2) | |||
| Retention | Retention (p) | |||
| Debit | Credit | Debit | Credit | |
| 500(1) | 500(3) | 500(1) | 500(3) | |
Transaction 1 (1)
This entry bills the client $10,000 with 5% retention. The billed/unearned amount is credited with the $10,000 receivable, Accounts Receivable is debited $9,500, and retention is debited with the remaining $500.
Transaction 2 (2)
This entry recognizes $10,000 in revenue. As is the usual entry, the billed/unearned account is cleared and the revenue account is credited.
Transaction 3 (3)
This entry releases the retention amount of $500. The retention account is credited $500 which clears the retention balance, and Accounts Receivable is debited for the billed amount.
Notice nothing happens to billed/unbilled because the full billable amounts were applied during the first billing transaction.