Managing Retainage

Retainage is an agreed upon amount, typically a percentage, that you

withhold from a subcontractor until the subcontractor makes predetermined
progress for a particular scope of work. Retainage is also known
asretention or contractual withholds. For example, the contract can specify
that you will retain 20 percent from all payments until 25 percent of work is
complete. Therefore, whenever the subcontractor sends you an invoice, you
retain 20 percent of each payment until the overall progress reaches 25
percent.
Oracle Payables automatically calculates the retainage amount for a supplier
invoice based on the retainage rate and maximum retainage amount that
you specify on the purchase order header in the Buyer WorkCenter in Oracle
Purchasing. It stores the retainage amount as a separate distribution line
with a distribution line type of Retainage. Oracle Payables has one retainage
account it uses for each operating unit. Retainage invoice distribution lines
can be project-related.
Oracle Projects does not report on or interface project-related retainage
distribution lines as commitments or actual costs. Instead, Oracle Projects
captures the full amount of the expense as a commitment and, when
applicable, for the funds check. Later, the full amount of the expense is
interfaced to Oracle Projects as an actual cost. Retainage is related to the
payment of the invoice and it ultimately does not have an impact on the
overall project cost.

Retainage and Accrual Basis Accounting Example

The following example illustrates the flow of accounting for a project-related
invoice with a retainage distribution line.
Purchase Order Retainage Percentage: 9.2%
Contract Term: Retain 9.2% from all payments until 25% of work is
complete.
You create an invoice matched to the purchase order for $100.00 and Oracle
Payables calculates a retainage amount of $9.20. The following table shows
the resulting accounting. All amounts are in US Dollars.
Account

Debit

Expense Account

100.00

Credit

Payables Liability Account

90.80

Retainage Account (Deferred Liability)

9.20

After you validate the invoice and create accounting for the invoice, you
interface the actual costs to Oracle Projects. The process PRC: Interface
Supplier Costs interfaces a total actual cost of $100.00. With accrual basis
accounting, the timing of the payments does not affect when you can
interface the actual costs to Oracle Projects.
Later, the subcontractor completes 25% of the work and you release the
amount that you previously retained. A total of $9.20 is released. The
following table shows the resulting accounting. All amounts are in US Dollars.
Account

Debit

Retainage Account (Deferred Liability)

9.20

Payables Liability Account

Credit

9.20

In this example, the release of the retained amount has no affect on the
actual costs in Oracle Projects because you previously interfaced the full
$100.00 as actual costs.
Note: If an invoice is associated with non-revoverable tax, then the process
PRC: Interface Supplier Costs interfaces the portion of the non-recoverable
tax that is associated with the retaininge to Oracle Projects after you release
the retained amount, validate the retainage release invoice, and create
accounting for the invoice.

Retainage Release Invoice Concept and it's Accounting Entry Oracle Payables

Thisinvoiceisusedtoholdsomeportionofamountfromthe
supplierPayment.Theremainingwillbepaidtosupplieronlyat
thecompletionofthetotalwork.
SetupSteps:
1. EnterRetainageAccountatFinancialOptions.

2. EnterRetainagePercentage(%)atSupplierlevelinInvoice
ManagementTab.
3. CreateComplexServiceAgreementsPOinPurchasing
Module.
4. CreateaStandardInvoicebymatchingwithabovecreated
ComplexServiceAgreementPO.
5.MakePaymentforaboveStandardInvoice.
6.WhenContracttheiscompleted,ReleasetheRetainage
PercentageamountbycreatingRetainageReleaseInvoice
bymatchingwiththePO.
7.MakepaymentforRetainageInvoice.
AccountingEntries:
WhenInvoiceismatchedwithStandardInvoice:
AccrualA/c.........................Dr.
ToLiabilityA/c.............Cr.
ToRetainageA/c............Cr(PickfromFinacial
Options)
ForMakingPaymentforStandardInvoice:
LiabilityA/c........................Dr
ToCashClearingA/c.........Cr
WhenRetainageInvoiceisCreated:
RetainageA/c.......................Dr
ToLiabilityA/c....................Cr.
ForMakingPaymenttoRetainageInvoice:
LiabilityA/c.......................Dr
ToCashClearingA/c..............Cr.