Prroduct Item

Products you sell to customers fall into three categories: ones you keep in inventory, ones you special order, and ones you assemble. QuickBooks can handle inventory as long as your company passes the tests. Likewise, products you purchase specifically for customers or jobs are no problem. Quick- Books can handle lightly assembled products like gift baskets or gizmos made from widgets—but

you’ll need QuickBooks Premier Edition to do even that.

In QuickBooks, choose one of these three item types for the products you sell:

• Inventory Part. Use this type for products you purchase and keep in stock for resale. Retailers and wholesalers are the obvious examples of inventory-based businesses, but other types of companies like building contractors may track inventory, too. You can create Inventory Part items only if you turn on the inventory feature. With inventory parts, you can track how many you have, how much they’re worth, and when you should reorder.     â•‰Product Items

• Non-inventory Part. If you purchase products specifically for a job or a customer and don’t track how many products you have on hand, use Non-inventory Part items. Unlike an Inventory Part item, this type of item has at most two account fields: one for income you receive when you sell the part, and another for the expense of purchasing the part in the first place.

• Inventory Assembly. This item type (available only in QuickBooks Premier and Enterprise editions) is perfect when you sell products built from your inventory items. For example, say you stock wine bottles and related products like corkscrews and glasses, and you assemble them into gift baskets. With an Inventory Assembly item, you can track the number of gift baskets you have on hand as well as the individual inventory items. You can also assign a different price for the gift basket than the total of the individual products.RNATE

The New Item (or Edit Item) dialog box for an Inventory Assembly item includes a Build Point field instead of the Reorder Point field that Inventory items have. The reorder point for Inventory items tells QuickBooks when to remind you to reorder individual Inventory items. As you build Inventory Assembly items, QuickBooks keeps track of how many individual Inventory items you use, which can trigger a reorder reminder. Because you assemble this type of item, you fill in the Build Point field with the minimum number of inventory assemblies you want on hand to tell QuickBooks when to remind you to build more

Inventory Part Fields

Money moves between accounts as you buy and sell inventory. Here’s how you can use the fields for an Inventory Part item (shown in Figure 5-8) to define your company’s inventory money trail and, at the same time, keep track of how much inventory you have:

• Manufacturer’s Part Number.

If you want your purchase orders to include the manufacturer’s part number or unique identifier for the product, enter it here.

╉Product Items

 When you create a new Inventory Part item, QuickBooks includes fields for purchasing and selling that item. The fields in the Purchase Information section show up on purchase orders. The Sales Information section sets the values you see on sales forms, such as

invoices and sales receipts. The program simplifies building your initial inventory by letting you type the quantity you have on hand and its value.

• Description on Purchase Transactions. Whatever you type here appears on the purchase orders you issue to buy inventory items. Describe the product in terms that the vendor or manufacturer understands, because you can use a different and more customer-friendly description for the invoices that customers see.

• Cost. Enter what you pay for one unit of the product. QuickBooks assumes you sell products in the same units that you buy them. So, for example, if you purchase four cases of merlot but sell wine by the bottle, enter the price you pay per bottle in this field.

• COGS Account. Choose the account to which you want to post the costs when you sell the product. (COGS stands for “cost of goods sold,” which is an account for tracking the underlying costs of the things you sell in order to calculate your gross profit.)

Items

• Preferred Vendor. If you choose a vendor in this drop-down list, QuickBooks selects that vendor when you add this Inventory Part item to a purchase order.

• Description on Sales Transactions. QuickBooks automatically copies what you typed in the “Description on Purchase Transactions” field into this box. If your customers wouldn’t recognize that description, type a more customerfriendly one here.

• Sales Price. Type in how much you charge for the product, and make sure that the Cost field uses the same units. For example, if you sell a bottle of merlot for $15, type 15 in this field and type the price you pay per bottle in the Cost field.

• Tax Code. When you add an item to an invoice, QuickBooks checks this field to see whether the item is taxable. (QuickBooks comes with two tax codes: Non for nontaxable items and Tax for taxable items.) Most products are taxable, although groceries are a common exception.

• Income Account. This drop-down list includes all the accounts in your chart of accounts. Choose the income account for the money you receive when you sell one of these products.

• Asset Account. Choose the asset account for the value of the inventory you buy. Suppose you buy 100 bottles of merlot, which are worth the $8 a bottle you paid. QuickBooks posts $800 into your inventory asset account. When you sell a bottle, QuickBooks deducts $8 from the inventory asset account and adds that $8 to the COGS Account.

• Reorder Point. Type the quantity on hand that would prompt you to order more. When your inventory hits that number, QuickBooks adds a reminder to reorder the product to the Reminders List.

Tip: If you can receive products quickly, use a lower reorder point to reduce the money tied up in inventory and prevent write-offs due to obsolete inventory. If products take a while to arrive, set the reorder point higher. Start with your best guess and edit this field as business conditions change.

• On Hand. If you already have some of the product in inventory, type the quantity in this field. From then on, if you use QuickBooks’ inventory feature (Chapter 19) to record inventory you receive, you can rely on it to accurately post inventory values in your accounts.

• Total Value. If you filled in the On Hand field, fill in this field with the total value of the quantity on hand. QuickBooks increases the value of your inventory asset account accordingly.

• As of. The program uses this date for the transaction it creates in the inventory asset account.

Note: You can enter values for the last three fields listed above only when you create a new item. From then on, QuickBooks calculates how many you have on hand based on the number you’ve sold and the number you’ve received.   Other Types of Items

Non-Inventory Part Fields

You’ll need Non-inventory Part items if you use purchase orders to buy supplies or other products that you don’t track as inventory. For example, suppose you’re a general contractor and you purchase materials for a job. When you use Non-inventory Part items, QuickBooks posts the cost of the products to an expense account and the income from selling the products to an income account. You don’t have to bother with the inventory asset account because you transfer ownership of these products to the customer almost immediately.

The good news about Non-inventory Part items is that they use all the same fields as Service items. The bad news is the few subtle differences you need to know. Take the following disparities into account when you create Non-inventory Part items:

• “This item is used in assemblies or is purchased for a specific customer:job” checkbox.

This checkbox goes by a different name than the one in Service items, but its effect is the same. Turn it on when you want to use different values on purchase and sales transactions for items you resell. If the Non-inventory Part item is for office supplies you want to place on a purchase order, turn this checkbox off because you won’t have sales values.

When this checkbox is on, QuickBooks displays Income Account and Expense Account fields, like the ones you saw in Figure 5-6 (bottom). For Non-inventory Part items, the accounts that you choose are income and expense accounts specifically for products. Read the next bullet point to find out what happens when you turn this checkbox off.

• Account.

 If you don’t resell this product, turn off the “This item is used in assemblies or is purchased for a specific customer:job” checkbox and you’ll see only one Account field. QuickBooks considers the account in this field an expense account for the purchase.

• Tax Code.

This works exactly the same way as it does for a Service item. Choose Non if the products are nontaxable (like groceries), and Tax if they’re taxable.