This chapter is from the book
This chapter is from the book
This chapter is from the book
Items
Items are what you sell or buy and are used on all customer transactions and optionally on purchase transactions. Items provide a quick means for data entry. However, a more important role for items is to handle the behind-the-scenes accounting while tracking product- or service-specific costs and revenue detail.
Adding an Item
Adding items to your QuickBooks file takes some planning, but the effort will pay off with improved reporting on the different services or products your company provides.
Later in this chapter you will learn how to add multiple items at a time using the Add/Edit Multiple List Entries. In this example, you will be adding a single new Service item type to the sample data file.
Adding a New Service Item
To practice adding a new service item, open the sample data file as instructed in Chapter 1. If you are working in your own file, use these instructions to begin creating your own service items.
- From the menu bar, select Lists, Item List to open the Item List dialog box.
- Select New from the Item drop-down list. Optionally, use the keyboard shortcut Ctrl+N.
- From the Type drop-down list select Service.
- In the Item Name/Number field, type Inspection.
- Select the This Service Is Used in Assemblies or Is Performed by a Subcontractor or Partner checkbox, as shown in Figure 4.3. This makes the item “two-sided,” assigning both an expense account when used with a purchase transaction and an income account when used with a sales transaction.
Figure 4.3. Items are used on customer sales transactions and purchase transactions.
- In the Purchase Information text box, type Inspection.
- Enter a default Cost. This amount will default on a purchase transaction, but can also be changed at the time of entry. If you do not want a default cost for the item, leave the box blank.
- In the Expense Account field, select the appropriate account. For this example, we will use the Cost of Goods Sold account because the item is directly related to our Customers or Jobs.
- In the Preferred Vendor field assign a vendor or leave blank. When a preferred vendor is assigned QuickBooks will pre-fill that vendor name on a purchase order transaction when the item is selected.
- Accept the default description in the Sales Information text box or type a unique description. This description will default on your sales transactions for this item. Optionally, enter a default Sales Price. This amount will default on sales transactions, but can be changed at the time of entry.
- From the Tax Code drop-down list, select Non. In your own file, select the tax code, choosing Tax if the item is subject to sales tax or Non for nontaxable services. Check with your state’s taxing authority if you have any questions about an item or service you sell being taxable or not.
- From the Income Account drop-down list, for this practice, select the Subcontracted Labor Income account.
- If you are finished adding items, click OK to save and exit the New Item dialog box. If you want to continue adding items, click Next to add another item.
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For more information about tracking product inventory, see “Inventory Item Type Descriptions,” p. 152.
For more information about other uses of the items list, see “Unique Customer Transactions,” p. 409.
Understanding Items
Using a construction business as an example, you can create an item for Site Work, Electrical, and Plumbing Subcontractor and assign each item to your single Cost of Goods Sold—Subcontractors account in the chart of accounts.
Using items enables you to capture cost detail by trade rather than by creating an account for each type of expense. When you view your Profit & Loss statement, you can easily see what your total Cost of Goods Sold—Subcontractors is for all trade labor expenses. See Figure 4.4.
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Figure 4.4. Item reports provide detail while keeping the Profit & Loss easy to read.
From the menu bar, select Reports, Jobs, Time & Mileage for reports that provide detailed information about transactions assigned to items, including
- Job Profitability Summary or Detail
- Job Estimates vs. Actuals Summary or Detail
- Item Profitability
- Time by Item
TIP
Use the Items tab on expense transactions such as Write Checks or Enter Bills to ensure that you have the detailed reporting you need to review customer or job profitability.
These reports are useful for a business owner who would like to know the profitability of individual customers or jobs.
Item Types
QuickBooks has 11 item types to choose from (not including the Fixed Asset Item), although some of the items might not be listed in your data file if the related feature is not enabled. You can choose the type to assign to a list item; however, each type has certain unique characteristics. Here are some general guidelines about the proper use for item types:
- Service—Create this type for services offered by you or your subcontractors.
- Inventory Part—This type displays only if you select the Inventory and Purchase Orders Are Active checkbox on the Items & Inventory—Company Preferences tab of the Preferences dialog box. (Access the dialog box from the menu bar by selecting Edit, Preferences.) Inventory is used to track products you make or buy, place in a warehouse location, and later sell to a customer. Inventory is increased with a received purchase order or bill and is decreased on a customer invoice.
For more information, see Chapter 5, “Setting Up Inventory,” and Chapter 6, “Managing Inventory.”
- Inventory Assembly—This item type is an assembling of multiple inventory components, as in a Bill of Materials. When an inventory assembly is built, the individual items (components of the assembly) are deducted from inventory and the quantity of the finished assembly product is increased. The assembly functionality is available only in QuickBooks Premier, Professional Bookkeeper, Accountant, or Enterprise.
- Non-inventory Part—This type is used for products you purchase but do not track as inventory. Correct use of this type would include products you purchase that are ordered for a specific customer and directly shipped to the customer, or for materials and supplies you purchase but do not sell to the customer.
- Other Charge—This is a multipurpose item type. Freight, handling, and other miscellaneous types of charges are examples of the proper use of the Other Charge item type. Using this type makes it possible to segregate sales of your service or product from other types of revenue and expenses in reports.
- Subtotal—This type is used to add subtotal line items on sales and purchase transactions. This item is especially useful if you want to calculate a specific discount on a group of items on a customer invoice.
- Group—This type is used to quickly assign a grouping of individual items on sales and purchase transactions. Unlike assemblies, groups are not tracked as a separate finished unit. Groups can save you data entry time and enable you to display or hide details on a customer’s printed invoice.
- Discount—This type facilitates dollar or percent deductions off what your customers owes. This item type cannot be used on purchase transactions.
- Payment—This item type is not always necessary to set up. You create this item type if you record the payment directly on an invoice as a line item, such as with a Daily Sales Summary (see the QuickBooks Help for more details). On typical customer invoices, you should not record payments in this manner because there is no tracking of the customer’s check or credit card number.
- Sales Tax Item—This type is available only if you enabled sales tax on the Sales Tax—Company Preferences tab of the Preferences dialog box. (Access the dialog box from the menu bar by selecting Edit, Preferences.) In most cases, QuickBooks automatically assigns this item to an invoice. In some states or industries where there are multiple sales tax rates for a given sale, you can also add this item to an invoice as a separate line item.
- Sales Tax Group—This type is used to group multiple tax district flat-rate sales tax items that are combined and charged as one sales tax rate.
CAUTION
Carefully determine the correct item type to use when creating items. After they are created, the following item types cannot be changed to any other item type: service, inventory assembly, subtotal, discount, payment, sales tax item, and sales tax group.
If you find you have set up the wrong item type, correcting it might require making an accounting adjustment. To avoid using the incorrect item on future transactions, mark the item as inactive by selecting Lists, Item List from the menu bar to open the Item List dialog box. Select Edit Item from the Item drop-down list and then select the Item Is Inactive checkbox. When this box is selected, as Figure 4.5 shows, the item is not included in any drop-down lists on transactions, but is included in reports if used during the period being reported.
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Figure 4.5. Marking a list item inactive only removes it from drop-down lists, not reports.
However, do not make an inventory type inactive if QuickBooks still shows available inventory quantity.