How to Record Retention Payable to a Subcontractor
Withholding a percentage of a subcontractor's payment as a guarantee for their work quality.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Subcontractor Expense | Expense (+) | 10,000.00 | - |
| Cash / Bank | Asset (-) | - | 9,000.00 |
| Retention Payable (Contractor) | Liability (+) | - | 1,000.00 |
💡 Accountant's Note
Common in Jordan's construction sector. You pay the sub 90% and keep 10% (Retention) until the 'Defects Liability Period' is over, usually one year later.
Practitioner & Systems Framework
💻 ERP Architecture
The ERP's subcontract management module should automatically deduct the retention percentage (e.g., 5-10%) from the subcontractor's progress payment entry. The retained amount must sit in a Retention Payable ledger, tracked by subcontractor and project. Ensure automated alerts are set for retention release dates (e.g., 12 months post-completion).
⚠️ Audit Flags
Auditors will reconcile the Retention Payable sub-ledger to the GL. They check for old, unpaid retentions which might indicate disputes or unrecorded subcontractor back-charges. They also confirm that retentions are not released prematurely without project manager authorization.
📄 Required Documentation
Subcontractor agreement detailing retention terms, subcontractor progress invoice, and practical completion/defects liability period expiry certificates.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.