A retainer fee is a type of unearned revenue in which a company, such as a law firm, receives a cash payment up front for services it will provide in the future. According to the accrual basis of accounting, a company must record revenues in the period they are earned. This means you can record the receipt of cash for the retainer fee, but must wait to recognize the revenue for your services until it has been earned. You can use an account called unearned revenue in your accounting journal to reflect the liability for the value of services you have yet to provide.
Determine the amount of the retainer fee and the date on which you collected it. For example, assume you received a $6,000 retainer fee on November 1 to provide one year of your services.
Write the date on which you received the retainer fee in the date column in a new entry in your accounting journal. For example, write “11-01” in the date column.
Write “Cash” in the accounts column of the first line of the entry and the amount of the retainer in the debit column on the same line. Debit means an increase in a cash account. For example, write “Cash” in the accounts column and “$6,000” in the debit column to reflect the receipt of the retainer fee in cash.
Write “Unearned Revenue” with a left indent in the accounts column on the next line of the journal entry and the amount of the retainer fee in the credit column on the same line. Credit means an increase in an unearned revenue account, which is a liability account. For example, write “Unearned Revenue” in the accounts column and “$6,000” in the credit column. This shows that you have yet to earn and recognize $6,000 in revenue from the retainer fee.
Write a description of the journal entry in the accounts column on the next line of the entry. For example, write “Record receipt of retainer fee” in the accounts column.