Chart of Accounts - Retainer-Based Business

Retainer businesses: marketing agencies, law firms, accountants, fractional executives, PR firms—charge clients a fixed monthly fee for ongoing access to services.

What makes the bookkeeping distinct is managing deferred revenue correctly (a retainer paid in advance is not earned until the month it covers), tracking overage billing separately, and understanding the true cost of serving each client.

Recommended Chart of Accounts

Assets

Account	Type	Notes
Chequing Account	Bank
Accounts Receivable	AR	Outstanding invoices, including overages
Prepaid Expenses	Other Current Asset	Software, insurance paid upfront

Liabilities

Account	Type	Notes
Accounts Payable	AP
Deferred Revenue — Prepaid Retainers	Other Current Liability	When a client pays a retainer in advance (e.g., pays January's retainer in December), the December payment is not yet earned. Sits here until the service month begins.
GST/HST Payable	Other Current Liability
Credit Card	Credit Card

Equity

Account	Type	Notes
Retained Earnings	Retained Earnings
Share Capital	Equity

Revenue

Account	Type	Notes
Retainer Revenue	Income	Monthly recurring fees — the core revenue line
Overage Revenue	Income	Additional fees billed when work exceeds the retainer scope. Track separately so you can see how often and by how much clients are going over.
Project Revenue	Income	One-time engagements billed outside the retainer (strategy projects, audits, launches). Keeping this separate from retainer revenue gives you a clearer MRR picture.
Early Termination Fees	Income	Add only if you have contract exit clauses that generate revenue — worth tracking separately for visibility.

Cost of Goods Sold / Direct Costs

Account	Type	Notes
Direct Labour — Client Delivery	COGS	Time from employees or contractors directly serving clients
Freelancer and Contractor Costs	COGS	External resources brought in for specific client work
Direct Software and Tools	COGS	Per-client software costs — tools purchased specifically to serve a client (e.g., a client's ad account fees, licensed tools billed at cost)

Expenses

Account	Type	Notes
Salaries — Non-Client	Expense	Management, sales, admin — time not directly attributable to client delivery
CRM and Client Management Tools	Expense	Tools used across all clients, not tied to one
Business Development	Expense	Proposals, pitches, business travel for sales
Professional Development	Expense	Certifications, conferences, training
Professional Fees	Expense	Legal, accounting
Office and Admin	Expense
Software and Subscriptions	Expense	Internal tools not directly client-facing
Insurance	Expense

Notes on Specific Accounts

Deferred Revenue — Prepaid Retainers

If clients pay monthly and the payment arrives at the start of the month for that month's service, you can recognize it as revenue immediately. If clients pay in advance (e.g., quarterly upfront, or December payment for January service), the payment is a liability until the service month arrives. This distinction matters for accurate monthly P&Ls — your Mesa CPA bookkeeper will set up the recognition pattern that fits your billing cycle.

Retainer vs. Overage Revenue

Keeping these separate does two things: it shows you your true recurring monthly revenue (MRR) without inflation from overages, and it tells you which clients are consistently going over scope — a signal to reprice the retainer.

Direct Labour — Client Delivery

For retainer businesses, this is usually the biggest cost and the most important one to understand. If you are not tracking time, you likely do not know your actual margin per client. Even a rough time-tracking practice reveals which retainers are profitable and which are underwater.

When to add a Client Profitability layer

The CoA gives you aggregate margins. To see profitability by client, enable QBO's Class or Customer tracking and tag revenue and direct costs to specific clients. Once you have 5+ clients, this becomes worth setting up.

FAQ

A client pays a 3-month retainer upfront. How do I record it?

Record the full payment as Deferred Revenue when received. Each month, move one-third to Retainer Revenue as the service is delivered. Your Mesa CPA bookkeeper can set up a recurring journal entry to handle this automatically.

What if a client does not use their full retainer one month — do I still recognize the revenue?

Typically yes — a retainer is for availability, not just output. Unless your contract specifies rollover provisions (unused hours carry to the next month), the revenue is earned in the month it covers. If you do offer rollover, keep track of the outstanding obligation in Deferred Revenue.

Should I track time if I am on fixed retainers?

Yes. Fixed pricing does not mean your costs are fixed. Time tracking tells you your actual margin per client and prevents scope creep from quietly eroding profitability. You do not have to bill by the hour — but you should know what an hour costs you.

What is the difference between Retainer Revenue and subscription revenue?

Functionally similar — both are recurring fees for ongoing access. The accounting is the same. The distinction is more about how the service is framed to clients.