Accounts Payable lets you account for retainage (or a holdback) that occurs when your vendor withholds a percentage of an invoiced amount, usually by mutual agreement or according to a statute (such as a Builders Lien Act).
There are two steps in processing retainage:
- First, you post an invoice, debit note, or credit note that specifies a holdback (retainage) for the document.
- Later, you post a separate retainage invoice, debit note, or credit note to invoice the outstanding retainage amount.
Entering Original Documents with Retainage
An invoice, debit note, or credit note from which retainage is taken is called an original document in Sage 300.
You enter the invoice, debit note, or credit note using the A/P Invoice Entry screen, as usual. To indicate that retainage applies to the document, however, you select the Retainage option.
Note: The Retainage option appears only if you selected the Retainage Accounting option for your Accounts Payable system.
Accounts Payable then displays the retainage percentage, retention period, retainage rate, and the retainage terms from the vendor record.
- Retainage Amount. To calculate the retainage amount, Accounts Payable multiples the document amount (or the document total, if you include taxes in retainage) by the retainage percentage. You can enter a new retainage amount, if necessary. When you enter an amount to replace a calculated amount, Accounts Payable recalculates the retainage percentage.
The retainage amount is subtracted from the document amount (or the document total) to calculate the amount due.
- Retainage Due Date. Accounts Payable calculates the retainage due date (the date the outstanding retainage is due for invoicing) by adding the number of days in the retention period to the original document date. You can enter a different due date, if you want.
- Retainage Percentage. Accounts Payable uses the retainage percentage to calculate the retainage amount.
You can enter a different retainage percentage in the Retainage Percentage (%) field. When you enter a new percentage, Accounts Payable recalculates the retainage amount.
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Retainage Rate. You use this field to specify the method Accounts Payable uses to determine the exchange rate for the retainage document when you eventually process it. You can choose one of the following:
- Use Original Document Exchange Rate. Uses the same rate as the document you are processing.
- Use Current Exchange Rate. Uses the rate in effect when you process the retainage document to clear the outstanding retainage.
- Retainage Terms. You can use different terms for retainage documents (used to process invoices for outstanding retainage) than you used for the original document from which the retainage was taken.
Accounts Payable displays the code specified for retainage terms in the vendor record, but you can change the retainage terms for a document.
- Retention Period. Accounts Payable uses the retention period to calculate the due date for the retainage document. When you change the retention period, Accounts Payable recalculates the retainage due date, and vice versa.
Apply Document Transactions
When you apply original debit notes or credit notes that include retainage in A/P Invoice Entry, or when you apply credit notes in A/P Payment Entry, only the original document balances are affected. Outstanding retainage amounts remain with original documents until you post retainage documents or adjustments to clear the outstanding retainage.
Taxes on Retainage
Tax on retainage is processed according to the Report Tax option selected on the A/P Options screen. The option provides the following alternatives:
- At Time of Original Document. If you select this option, Accounts Payable calculates and reports (posts) tax on retainage when you post an original document that includes retainage.
- As Per Tax Authority. If you select this option, Accounts Payable calculates tax when you post an original document, but reports (posts) the tax as required by each tax authority. The tax reporting requirements for each tax authority are specified by the Report Tax On Retainage Document option, in Tax Services. The tax authority can specify No Reporting, At Time Of Retainage Document, or At Time Of Original Document.
Some tax authorities require that you report tax when you post a retainage document; others let you report tax when you post an original document to which retainage applies.
If the tax authority reports tax At Time of Original Document, the tax amount is calculated and the tax tracking reports are updated immediately when you post original documents.
If the tax authority reports tax At Time of Retainage Document, the tax amount is calculated when you post the original document, but it is not reported until you post the retainage document.
To report tax, Accounts Payable posts tax amounts to a tax liability account and updates the tax tracking reports. The timing of the tax liability on retainage documents depends on the tax authority.
Posting Original Invoices, Debit Notes, and Credit Notes
When you post the original retainage document, Accounts Payable deducts the retainage from the document total, and posts the amount to the retainage control account.
For example, if you enter an invoice for $10,000 with 10% retainage, an invoice is posted for $9,000 with retainage outstanding of $1,000.
The retainage amount remains in the control account until you invoice it in accordance with:
- The retention period or retainage due date specified for the invoice.
- The number of days in advance specified on the A/P Options screen for generating retainage documents.
Adjusting Original Documents
A/P Adjustment Entry lets you adjust retainage related to posted invoices, debit notes, and credit notes, as follows:
- To change the retainage amount for an original document, you use the detail-entry table to adjust each detail or to add a new detail that includes retainage. Enter the amount by which to adjust retainage in the retainage debit or retainage credit fields on the table.
You can also add retainage to a document that did not include retainage. You enter the retainage due date, as well as the retainage amount, for each detail on the detail-entry table. You also enter retainage terms and the retainage exchange rate for the document, if you are adding retainage to a document for the first time.
- You specify retainage terms and the retainage exchange rate option for the whole document on the Retainage tab.
Note: If retainage was included on the original document, Accounts Payable uses the retainage exchange rate setting from the original document.
- If you add a new detail to which retainage applies, the retainage document detail inherits the Discountable status from the distribution code used in the adjustment detail.
If you don't use a distribution code in the adjustment detail, the retainage detail is discountable by default.
- You can change both the retainage amount and add or change document details. Accounts Payable then creates two entries: one for the detail adjustment, and the other for the retainage adjustment.It does not create a compound entry.
When you post the adjustment, Accounts Payable adjusts the outstanding retainage account.
Note that Accounts Payable does not calculate any retainage on adjustment transactions. You must enter the retainage manually, whether you are adding it for the first time, or adjusting existing retainage debits or credits.
Invoicing Outstanding Retainage
You invoice for outstanding retainage amounts, or holdbacks, either manually, using the A/P Invoice Entry screen, or automatically, using the A/P Create Retainage Batch screen. If you have posted debit notes and credit notes to which retainage applied, you also create retainage debit notes and credit notes using the Invoice Entry screen and the Create Retainage Batch screen.
Invoicing Retainage Manually
Normally, you would use the Create Retainage Batch screen to invoice periodically for retainage. However, Accounts Payable also lets you process outstanding retainage manually.
To invoice manually for outstanding retainage, or to manually process a credit note or debit note to clear an outstanding retainage amount, you use the Invoice Entry screen.
You enter information for the retainage invoice, credit note, or debit note, as usual. To invoice for retainage, you must:
- Select Summary as the detail type. (Retainage documents are summary documents.)
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Select Retainage Invoice, Retainage Credit Note, or Retainage Debit note as the document type, consistent with the original retainage document for which you are now processing outstanding retainage. (These options are not available if you selected Item as the detail type.)
Because outstanding retainage remains associated with the original retainage document, you must use a retainage invoice if the original document was an invoice, a retainage debit note if the original document was a credit note, and a retainage debit note if the original document was a debit note.
Use the Original Document field to specify the original retainage document for which you are invoicing the outstanding retainage.
When you post the retainage documents (invoices, credit notes, or debit notes), Accounts Payable transfers outstanding retainage amounts from the retainage control account to the payables control account.
Viewing Retainage Information
You can view retainage information on the:
- Vendor Activity screen. To review the relationships between retainage documents, you can use the Transactions tab on the A/P Vendor Activity screen.
Select a retainage transaction, then click the:
- Document button to open the document in the transaction entry screen.
- Open button to display information for the retainage document in the separate Document Information screen.
The Document Information screen shows:
- The original retainage amount and retainage due date.
- The outstanding retainage amount (in the Retainage Amount field), if any.
- The retainage documents used to clear the outstanding retainage amount for the original document, if you have processed any (on the Item Activity table).
- Vendors screen. The Outstanding Retainage field on the Activity tab of the Vendors screen displays the amount of retainage outstanding for a selected vendor.
- Aged Retainage report. For more information, see Printing the Aged Retainage Report.
Revaluing Outstanding Retainage Amounts
If you use multicurrency, when you run Revaluation, Accounts Payable also revalues amounts outstanding in the retainage control account.
For revalued outstanding retainage, Accounts Payable creates general ledger entries to adjust the retainage control account rather than the payables control account.
If your Sage 300 system uses the Realized and Unrealized Gain/Loss accounting method to revalue multicurrency documents, Accounts Payable also creates reversing entries for the next period. (You set the revaluation accounting method using the Company Profile screen in Common Services.)
The A/P Revaluation Posting Journal includes a separate section for retainage after the current revaluation for each vendor.