A QuickBooks Item is very powerful if it is set up to correctly track both income and expenses, and then is used appropriately.
QuickBooks Items play an important role in your daily task of entering transactions into your QuickBooks company file. You use Items when you create invoices, fill out checks, create purchase orders, buy new equipment, enter a bill from a vendor, and even pay your employees.
In addition to making data entry easier, items handle ALL of the behind-the-scenes accounting functions for you when you use them, and that’s really important if you run any type of business that requires job costing. When you create an item, you link it to accounts; when you use the item on a QuickBooks form, it posts an entry to that account and another entry to the appropriate accounts receivable, accounts payable, checking, fixed asset, liability, cost of goods sold account, or any other expense account.
You’ll find that items are very easy to set up, but you may be confused about what they are used for. After all, the term “item” is pretty generic. For example, as a contractor your item list could hold your Cost Codes, a simple list of labor and materials that you use on a job, or a list of things that you keep in inventory and sell to your customers.
You really should spend some time deciding how you can make Items work for you before you start setting them up and using them. Below are some tips for creating your QuickBooks Item List:
- Use a current list of services and products
- Consider how much detail you want or need to display on your Estimates, Purchase Orders, Sales Orders, and Invoices
- Consider how much detail you want or need to track for Job Costing purposes
- Make sure that each of your items are set up to track both income and expenses
QuickBooks allows you to create several different types of items to help you create Purchase Orders, Estimates, Sales Orders and Invoices for your customers and fill out bills and checks to record the money you spend in order to get the job done. Choose from the following types of Items:
- Service – used for tracking specialized labor, consulting hours, and perhaps professional fees that you charge for or purchase from others
- Inventory Part – used for tracking goods or materials that you purchase, track as inventory and then resell to your customers
- Inventory Assembly – (available in Premier and Enterprise versions only) used for assembled goods you build or purchase, track as inventory, and resell
- Non-inventory Part – used for tracking goods and/or materials that you purchase for a specific job
- Other Charge – used for tracking miscellaneous labor, materials, delivery charges, setup fees, service charges, recording bounced checks, late fees, opening balances, reimbursable expenses, retainers/deposits, retainage, shipping and handling fees and more
- Subtotal – used to create a total of all items above it on an Invoice, useful for applying a percentage discount or to deduct retainage
- Group – used to associate individual items that often appear together on Estimates, Invoices, Purchase Orders, etc. Build groups so that all of the items that are in the group can be added to the form at the same time
- Discount – used to subtract a percentage or a fixed amount from a total or a subtotal. Do not use this item type for an early payment discount
- Payment – used to record a job deposit from a customer
- Sales Tax Item – used to calculate a single sales tax rate that you pay to a single tax agency
- Sales Tax Group – used to calculate and individually track two or more sales tax items that apply to the same sale – for example, if you have to collect a local, a county and a state sales tax, each of these items would be set up as individual Sales Tax Items and then combine them into a group
Keep in mind that you may not want to create items for 2 x 8’s or 2” sheetrock screws. If you create that type of detail, the person who enters the bills from the lumber yard or the hardware store will also have to break out all of the detail as well. For example, if your company does sheetrock – do you need an item for each edge type, thickness, and type of sheetrock you install? This then becomes a very time-consuming process that has a high margin for data entry errors. To streamline data entry could you perhaps get away with items just 7 items – 1 item for each type of sheetrock – and add the edge type and thickness to a general description?
Is your QuickBooks Item List doing its job for your company? Maybe it’s time for a review!
About the Author:
Nancy Smyth has supported Intuit products and end users since 1986, with her primary focus being commercial/government construction contractors. She has been a Certified QuickBooks ProAdvisor since 1999; and as President of Sunburst Software Solutions, Inc., she is a key player in the development of several QuickBooks Add-Ons for the construction industry. She is also the author of the QuickBooks for Contractors blog.