Retainage, deposits and customer deposit accounting
Cash in the bank is not always yours yet.
Short answer: A customer deposit is a liability until the builder does the work it pays for, so it belongs on the balance sheet, not in income. Retainage is part of a payment held back until a later milestone. Builders track retainage receivable from clients or lenders and retainage payable to subs, house by house.
Customer deposits
- Record as a liability account, by house
- Apply to the contract as work is earned or billed
- Never spend it on another house's costs
Retainage
- Retainage receivable: held back by the client or lender
- Retainage payable: what you hold back from subs
- Track both by house, with the release condition
Why it matters
Recording deposits as income makes margin look better early and worse at the end. The WIP schedule catches this.
Sources
Common questions
Is a deposit income?
Usually not until earned. Your CPA decides tax treatment.
Do custom home contracts use retainage?
Some do and some lenders hold it back. Your contract and loan terms decide.
Can you track this for me?
Yes, by house, every month.
Related
By John Mos, Founder. Updated . We do not give tax or legal advice. Please ask your CPA or attorney.
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