Service items

 

Service Items

Services are intangible things that you sell, like time or the output of your brain. For example, you might sell consulting services, Internet connection time, haircuts, or Tarot card readings. In construction, services represent phases of construction, which makes it easy to bill customers based on progress and to compare actual values to estimates.

Suppose you provide a telephone answering service. You earn income when your customers pay you for the service. You pay salaries to the people who answer the phones, regardless of whether you have 2 service contracts or 20. For this business, you earn income with your service, but your costs don’t link to the income from specific customers or jobs.

In some companies, such as law practices, the partners get paid based on the hours they bill, so the partners’ compensation is an expense associated directly with the firm’s income. Services that you farm out to a subcontractor work similarly. If you offer a 900 number for gardening advice, you might have a group of freelancers who field the calls and whom you pay only for their time on the phone.

You still earn income for the service you sell, but you also have to pay the law-practice partners or the subcontractors to do the work. The partners’ or subcontractors’ cost relates to the income for that service. Conveniently, QuickBooks displays different fields depending on whether a service has costs associated with income.

The mighty Service item single-handedly manages all types of services, whether you charge by the hour or by the service, with associated expenses or without. This section describes the fields you fill in when you create Service items.   •‰â•‰Service Items

The “This service is used in assemblies or is performed by a subcontractor or partner” checkbox, shown in Figure 5-6, is the key to displaying the fields you need when you purchase services from someone else.

 

Top: If a service doesn’t have costs directly associated with it, you define only the rate, tax code, and income account for the service. Bottom: If subcontractors or partners perform the service and get paid for their work, a Service item has to contain information for both the sales and purchase transactions. In that case, turn on the “This service is used in assemblies or is performed by a subcontractor or partner” checkbox to make QuickBooks display the additional fields shown here. QuickBooks uses the info you enter in the Purchase Information section of the Create Item (or Edit Item) dialog box to fill out purchase orders or track earned compensation. The data in the Sales Information section goes into fields on invoices.

Service Items Without Associated Costs Here’s how the fields in the New Item (or Edit Item) dialog box work when you’re creating a Service item that doesn’t include purchasing services from someone else (that is, when you turn off the “This service is used in assemblies or is performed by a subcontractor or partner” checkbox):    ╉╉Service Items

• Description. Type a detailed explanation of the service in this box. This description appears on invoices and sales forms, so use terms your customers can understand.

• Rate. Type how much you charge your customers for the service. You can enter a flat fee or a charge per unit of time. For example, you might charge $9.95 for unlimited gardening advice per call, or charge by the minute instead. When you add the item to an invoice, QuickBooks multiplies the quantity by the sales price to calculate the total charge. If the cost varies, type 0 in the Rate or Sales Price field; you can then enter the price when you create an invoice or other sales form. If the rate or price is often the same, fill in the most common rate. Then, when you add the item to an invoice, you can modify the rate whenever you want to use a different amount. For services that carry a flat fee, use a quantity of 1 on your invoices.

Note: QuickBooks multiplies the cost and sales prices by the quantities you add to sales forms. Be sure to define the cost and sales price in the same units so that QuickBooks calculates your income and expenses correctly.

• Tax Code. Most Service items are nontaxable, so you’ll choose Non here more often than not. (This field appears only if you’ve turned on the sales tax feature.)

• Account. Choose the income account to which you want to post the income for this service, whether it’s a catch-all income account for all services or one you create specifically for the service. Service Items with Associated Costs If you purchase services from someone else and have associated costs, you have to tell QuickBooks about your purchase from the other party and your sales transaction. In addition to the basics like Item Name and “Subitem of ”, here are the service fields you fill in when you do have associated costs for an item (turn on the “This service is used in assemblies or is performed by a subcontractor or partner” checkbox to see these extra fields):

• Description on Purchase Transactions. Type in the description that you want to appear on the purchase orders you issue to subcontractors.

• Cost. Enter what you pay for the service, which can be an hourly rate or a flat fee. For example, if a subcontractor performs the service and receives $100 for each hour of work, type 100 in this field. If the cost varies, leave this field set to 0. You can then enter the actual cost when you create a purchase order.   chapter 5: setting up invoice items 107 ╉Product Items

• Expense Account. Choose the account to which you want to post what you pay for the service. If a subcontractor does the work, choose a Cost of Goods Sold account or an expense account for subcontractor or outside consultants’ fees. If a partner or owner performs the work, choose a Cost of Goods Sold or an expense account for service-related costs.

• Preferred Vendor. If you choose a vendor in this drop-down list, QuickBooks selects that vendor for a purchase order when you add this Service item. This behavior isn’t that helpful because you usually choose the vendor for the purchase order before you add items to it.

• Description on Sales Transactions. QuickBooks copies the text from the “Description on Purchase Transactions” box into this box. However, if your vendors use technical jargon that your customers wouldn’t recognize, you can change the text in this box to something more meaningful.

• Sales Price. Type in how much you charge your customers for the service, as you would in the Rate field for a Service item that you don’t purchase from someone else.

• Tax Code. Most Service items are nontaxable, so you’ll choose Non here most of the time. (This field appears only if you’ve turned on the sales tax feature.)

• Income Account. Choose the income account to which you want to post the income for this service, whether it’s a catchall income account for all services or one you create specifically for the service.