Please HELP - Sales Tax Report

[Cindy SW]

A client's check was deposited in the bank and posted to a Client Retainer (Liability) Account. When the Client was invoiced, the amount deposited in the Retainer account was used to reduce the amount of the invoice. However, it also reduced the amount of the Sales.
Therefore, the sales tax revenue report is under-reporting total sales.
It looks like I Debited Retainer and Credited Cash in bank. Then Debited Sales and Credited Retainer.
Does anyone have any idea how I can fix this?
Thanks, Cindy

[RCollier]

Cindy,

When the original check was deposited in the bank the posting to your general ledger should have been something to the effect of DR to Cash and CR to Client Retainer (a liability account). I'm a little lost as to why you would be DR the Client Retainer account and CR the Cash account...did you refund money to the client?

First, do you have an "Other Charge" item pointing to the Client Retainer account? If not, set one up and name it "Retainer" and enter the name (or number) of your Client Retainer liability account in the account field. Also, make sure you set it as "Non" in the sales tax code field.

When you invoice your client using your usual charge items, the posting should have gone something like DR Accounts Receivable and CR Sales, for the amount invoiced. You can add the "Retainer" item on the next blank line of the invoice and enter the amount you are applying from the retainer to the invoice as a negative number. The total invoice at this point should be zero. This item will DR the Client Retainer account and CR the Accounts Receivable account.

[Cindy SW]

Thanks Russ,
Oops, Guess I got my debits and credits confused - again!

Your response describes exactly what occurred with regard to the Clent Retainer Account.

However, on the Sales Tax Revenue Report, the Client Retainer is included as a negative in Total Non-Taxable Sales.

Is this accurate? Can you explain why? I just can't figure it out!!!

[RCollier]

Was an invoice written in the system when the client first remitted their retainer? It just seems to me that no entry to the sales tax liability account should have been made when the client posted their retainer.

Look at the sales tax revenue report again and move your mouse pointer over the line where the negative amount is showing up. When the pointer changes to the magnifying glass with a "z" in it, double click the line and see what comes up. This should give you a clue as to what happened when the original (or perhaps a subsequent) entry was made on the retainer.

Let me know if you need more help with it.

[Cindy SW]

What comes up is the Invoice that I issued to charge the client for goods and services received. The Retainer shows as a negative amount on the Invoice, thereby reducing the amount due from the client.

[suzannemead]

If you are showing the retainer on the invoice, what "type" is the item listed as on you item list? If is listed as a payment item it won't reduce the sale. If you have it as a sales item it will reduce the sale since it would be showing as a "negative" sale. Go to your item list & see how you have it set up.

[RCollier]

Cindy,

Suzanne's response has prompted me to look at and play around with one of the QB sample companies to get my mind around the retainer issue. What you are seeing is what is I'm finding the in the sample company as well.

I don't necessarily agree with the way QB handles the retainer, but I don't know what else to tell you on this. In my opinion, using a portion of a client's retainer should not reduce your sales. It should be just like a credit on the client's account, but I don't see how to set it up as a payment item and make it work correctly (payment items don't seem to like the liability accounts).

Sorry that I could not be of more help to you on this.

[suzannemead]

You're right about using a payment item with a liability account. I wonder if using a fake bank type account (asset) to be a go-between account as the account the Retainer posts to, then an entry to the liability account from there would work. Seems like a better idea must be out there somewhere. Actually I think you could make Retainer an Other Charge type account and enter the reatiner as a minus. That would post to a current liability account with no problem & not reduce the sale.

[RCollier]

Suzanne,

According to what Cindy has been telling me, that is what she is doing and it is resulting in a negative sales on the sales tax revenue report. I found that this was also the case in the QB sample company.

I'm stumped!! I know all the journal entries to make this work, but how to get QB to do this is beyond me at this point.

[suzannemead]

I tried it again by making the Retainer item post to a clearing account , which is an asset account (bank type). It does work that way, but I know the retainers are not assets. Can't figure how to post direct from a current liability account in 1 step. Maybe tomorrow with a clear head.....