You don’t issue Credit note
to client in this case. Credit notes serve different purpose (see http://en.wikipedia.org/wiki/Credit_note)
Anyway, when you receive money from customer in advance, there is an account called Customer advance payments
. You want to categorize all receipts from customers which can’t be matched to sales invoices as Customer advance payments
.
Then, when you finally issue sales invoice to customer, you can make journal entry to transfer the invoice amount from Customer advance payments
account to Accounts receivable
account. This is process of matching customer prepaid credit with outstanding amount on sales invoice so invoice can be marked as paid without anyone actually paying.
So this is basically of how you would do it. If you need step-by-step tutorial, I’ll put it soon in our “How to” guides.
Also you don’t need to maintain separate bank account for retainers. Manager will show you on Summary
page under Liabilities
how much your clients have paid you in advance. One of the benefits of maintaining an accounting system is that you can see at glance all your liabilities so you don’t end up spending money you can’t afford to spend. Having special bank account that has sole purpose of mirroring some liability account is just more hassle than it’s worth unless it is legal requirement (as it is case with real estate agents collecting rent on behalf landlords etc.)