Agencies have a special talent for producing revenue numbers that look amazing and profit numbers that look confusing. Usually the chart of accounts is to blame. When $40,000 of client ad spend runs through "Revenue" and back out through "Advertising Expense", your income doubles on paper and your margin halves, and nobody can tell what the agency actually earned.
This guide gives you a template built for how agencies make money: retainers, projects, freelancers and pass-through costs. Every line comes with the reason it's there, so you can adapt it to your shop.
For the basics of any chart of accounts, see our chart of accounts guide for small business.
Three rules for an agency chart of accounts
- Delivery costs go above the line. The people and tools that produce client work belong in Cost of Revenue (QuickBooks calls it Cost of Goods Sold). That gives you a gross margin that shows how well you deliver.
- Pass-through costs stay separate. Media spend, printing and other costs you rebill at or near cost get their own income and cost accounts, so you can report "agency revenue" (what you keep) separately from gross billings.
- Retainers billed in advance aren't revenue yet. If you bill January's retainer on December 20, it's a liability (deferred revenue) until January.
The template
Turn on account numbers in QuickBooks Online under Settings, Account and settings, Advanced. They keep things tidy.
Assets (1000s)
| Number | Account | Why it's there |
|---|---|---|
| 1000 | Operating Checking | Day-to-day account |
| 1050 | Savings or Reserve | Money set aside |
| 1100 | Accounts Receivable | Invoices sent and not yet paid |
| 1150 | Unbilled Receivables (optional) | Work done but not yet invoiced, for agencies that bill in arrears |
| 1200 | Media Funds Receivable (optional) | Media spend you've paid and will rebill |
| 1400 | Prepaid Expenses | Annual software or insurance paid ahead. See accruals and prepaids explained |
| 1500 | Computer Equipment | Larger hardware purchases |
| 1590 | Accumulated Depreciation | Reduces equipment over time |
Liabilities (2000s)
| Number | Account | Why it's there |
|---|---|---|
| 2000 | Accounts Payable | Bills you owe |
| 2100 | Credit Cards (one per card) | Reconciled separately |
| 2200 | Deferred Revenue (Retainers Billed in Advance) | Retainers invoiced before the month of service |
| 2250 | Client Deposits | Project deposits received before work starts |
| 2300 | Media Payable (optional) | Media spend owed to platforms on clients' behalf |
| 2400 | Payroll Liabilities | Amounts owed to your payroll provider |
| 2500 | Accrued Expenses | Costs incurred but not yet billed to you, like a freelancer's unsent invoice |
Equity (3000s)
| Number | Account | Why it's there |
|---|---|---|
| 3000 | Owner's Equity or Common Stock | What owners put in |
| 3100 | Owner Draws or Distributions | What owners take out |
| 3900 | Retained Earnings | Profit kept over time |
Income (4000s)
| Number | Account | Why it's there |
|---|---|---|
| 4000 | Retainer Revenue | Recurring monthly fees |
| 4100 | Project Revenue | One-off projects |
| 4200 | Hourly or Consulting Revenue | Time billed by the hour |
| 4500 | Pass-Through Revenue (Media and Rebilled Costs) | Rebilled media and costs, kept apart from agency revenue |
| 4900 | Discounts and Write-offs | Keeps discounts visible |
Cost of Revenue (5000s)
| Number | Account | Why it's there |
|---|---|---|
| 5000 | Delivery Salaries | Wages of people who do client work |
| 5050 | Delivery Payroll Costs and Benefits | Employer costs for delivery staff |
| 5100 | Freelancers and Contractors | Outside talent on client work |
| 5200 | Client Software and Tools | Tools used for specific clients (seat licenses, stock assets) |
| 5500 | Pass-Through Costs (Media and Rebilled Costs) | The cost side of 4500 |
Agency revenue = total income minus Pass-Through Costs. That's the number to compare across months and against other agencies.
Operating expenses (6000s)
| Number | Account | Why it's there |
|---|---|---|
| 6000 | Leadership and Admin Salaries | Owners, finance, ops, sales staff not billing time |
| 6050 | Admin Payroll Costs and Benefits | Employer costs for those staff |
| 6100 | Rent and Coworking | Office space |
| 6200 | Software, Internal | Tools the whole agency uses (project management, email, design suites) |
| 6300 | Marketing the Agency | Your own ads, website, events |
| 6400 | Professional Fees | Accountant, legal |
| 6500 | Travel and Meals | Client visits and team travel |
| 6600 | Recruiting and Training | Hiring costs and courses |
| 6700 | Insurance | Business policies |
| 6800 | Bank and Merchant Fees | Card and transfer fees |
Pass-through costs: two ways to handle them
Option A: Gross (the template above). Rebilled media goes in as Pass-Through Revenue and out as Pass-Through Costs. Your P&L shows both. You report agency revenue by subtracting one from the other.
Option B: Net through the balance sheet. Media you pay on a client's behalf goes to Media Funds Receivable, and the client's reimbursement clears it. Neither touches the P&L. Only your markup or fee is revenue.
Which is right depends on your contracts and who is responsible for the spend. Ask your accountant which fits your agreements, and use one method consistently.
How to see profit by client
The chart of accounts says what kind of cost something is. To see which client it belongs to:
- Projects (QuickBooks Online Plus and Advanced) for client or campaign profitability.
- Classes for service lines, such as Paid Media, SEO and Creative. Our QuickBooks classes vs locations guide explains how classes work.
- Time tracking, so delivery salaries can be allocated to clients based on hours. Without it, the biggest cost in an agency is invisible at client level.
Our guide to agency profit by client walks through the monthly method. And if you want to know which margin to watch, read contribution margin vs gross margin for agencies.
Setting it up in QuickBooks Online, step by step
- Export your current chart of accounts as a backup.
- Turn on account numbers.
- Rename existing accounts where they match (keeps history attached) and add missing ones.
- Point products and services at the right income accounts: a "Monthly Retainer" item to 4000, "Media Rebill" to 4500.
- Set up a recurring journal entry or invoice routine for retainers billed in advance, so they move from Deferred Revenue to Retainer Revenue in the month of service.
- Split payroll between delivery (5000s) and admin (6000s). Your payroll provider can often map departments to accounts.
- Update bank rules so freelancer payments go to 5100 and internal software goes to 6200.
- Make old accounts inactive rather than deleting them.
Common agency mistakes
- All salaries in one account. You can't see delivery margin at all.
- Media spend in agency revenue. Revenue looks bigger, margin looks worse, and lenders or buyers get confused.
- Retainers recognized when invoiced. December looks great, January looks terrible, nothing changed.
- Freelancers in operating expenses. Delivery cost hides in overhead and client margins look better than they are.
- An account per client. Use projects or customers for that, not accounts.
Consultants and solo advisors can use a lighter version of this. See accounting for consultants.
When to get help
ABFI's agency accounting clients get this structure, retainer and pass-through handling and a monthly close with profit by client reviewed by a controller.
Comparing options first? See the best accounting software for agencies and the best bookkeeping services for agencies.
Keep reading
- Agency accounting: profit by client
- Contribution margin vs gross margin for agencies
- Gross margin vs net margin
Sources
- Intuit, QuickBooks Online Help, search "Turn on account numbers", "Classes" and "Projects", quickbooks.intuit.com/learn-support. Checked November 6, 2026.
- Financial Accounting Standards Board, ASC 606 Revenue from Contracts with Customers (principal versus agent considerations), www.fasb.org/page/PageContent?pageId=/projects/revenue-recognition.html. Checked November 6, 2026.
Questions owners ask
Should agency salaries be COGS or operating expenses?
Split them. Salaries for people doing client work go in cost of revenue; leadership, sales and admin go in operating expenses. That's the only way to see your delivery margin.
How should an agency record client ad spend?
Either gross (pass-through revenue and pass-through cost accounts) or net through the balance sheet, depending on your contracts. Keep it out of your core agency revenue either way.
How do I record retainers paid in advance?
Record them as deferred revenue when invoiced, then move them to revenue in the month the work is done.
How can I see profit by client in QuickBooks?
Use projects for clients, classes for service lines, and time tracking to allocate delivery salaries. Then run Project Profitability or P&L by Customer.
How many accounts should an agency have?
Enough to answer your real questions, usually 40 to 60 in total. If you have an account per client or vendor, you have too many.
Want to know what each client really earns you?
ABFI sets up an agency chart of accounts, retainer and pass-through handling and client profitability in your QuickBooks, then closes your books monthly. Start with a complimentary Business Accounting Diagnostic.