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I have to prepare a work in process report for my

Customer Question

I have to prepare a work in process report for my construction company. My contracts with my customers are long term and require that 10% retention be withheld from each progress payment. How do I treat the retention in the work in progress report? Since I cannot bill retention during the job, won't my WIP consistently show that I am under billed, even though I have not yet earned the retention? If I ignore retention, than at the end of the job I will be 100% billed but will still have retention to bill. This is confusing.
Submitted: 3 months ago.
Category: Tax
Expert:  ABC Accounting Group replied 3 months ago.

Hi. I can help.

You could set up a Retentions Receivable account:

1. Set up an account for Retentions Receivable.
2. Create an item for Retention.
3. Include the retention on an invoice.
4. Invoice the customer for the final retainer.

Hope this helps.

Expert:  ABC Accounting Group replied 3 months ago.

Here is an example:

Cash Account ...Dr. $200,000

Retention Receivables...Dr. $20,000

Accounts Receivables......................Cr. 220,000

Customer: replied 3 months ago.
I'm referring to the under/over billing calculations. Example: I have a $1,000,000 contract with a customer that will take me 18 months to complete. The contract calls for 10% retention. At the end of the first billing cycle I am 25% complete. Have I earned $250,000 (25% x $1,000,000) or only $225,000 (25% x $900,000)? Because of the retention, I can only bill the customer $225,000, not the full $250,000. Will I be under billed $25,000 and have to show it in the costs and earnings in excess of billings account? On the other hand, if I have only earned $225,000 (because retention has not been earned yet), then I will not be under billed. Which is correct? Thanks.
Expert:  ABC Accounting Group replied 3 months ago.

$250k

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