What Items Do

 

Whether you build houses, sell gardening tools, or tell fortunes on the Internet, you’ll probably use items in QuickBooks to represent the products and services you sell. But to QuickBooks, things like subtotals, discounts, and sales tax are items, too. In fact, nothing appears in the body of a QuickBooks sales form (such as an invoice) unless it’s an item.

Put another way, when you want to create invoices in QuickBooks (which you’ll learn how to do in Chapter 10), you need customers and items to do so. So, now that you’ve got your chart of accounts and your customers set up, it’s time to dive into items.

This chapter begins by helping you decide whether your business is one of the few that doesn’t need items at all. But if your organization is like most and uses business forms like invoices, sales receipts, and so on, the rest of the chapter will teach you how to create, name, edit, and manage the items you add to forms. You’ll learn how to use items in invoices and other forms in the remaining chapters of this book.

For your day-to-day work with QuickBooks, items save time and increase consistency on your sales forms. Here’s the deal: Items form the link between what you sell (and buy) and the income, expense, and other types of accounts in your chart of accounts. When you create an item, you specify what the item is, how much you pay for it, how much you sell it for, and the accounts to which you post the corresponding income, expense, cost of goods sold, and asset value.

For example, say you charge $75 an hour for the bookkeeping service you provide, and you want that income to show up in your Financial Services income account. So if you create a bookkeeping  item and then add it to a sales form, QuickBooks automatically multiplies the price per hour by the number of hours to calculate the full charge, and posts the income to your Financial Services account.

You also create items for other stuff you add to invoices, like discounts, shipping charges, and subtotals. You can work out which accounts to assign items to on your own or with the help of your accountant (a good idea if you’re new to bookkeeping), and then specify the accounts in your items. QuickBooks remembers these assignments from then on.

 

You’d be bound to make mistakes if you had to enter item details each time you added an entry to an invoice. By setting up an item in the New Item dialog box, you can make sure you use the same information on sales forms each time you sell that item. When the inevitable exception to the rule arises, you can edit the item info that QuickBooks fills in on the invoice by selecting portions of the text and replacing it or clicking in the text to position the cursor.

When it’s time to analyze how your business is doing, items shine. QuickBooks has built-in reports based on items, which show the dollar value of sales or the number of units of inventory you’ve sold. To learn how to use inventory reports. Other item-based reports are described throughout this book.

When You Don’t Need Items

 Without items, you can’t create any type of sales form in QuickBooks, which includes invoices, statements, sales receipts, credit memos, and estimates. Conversely, if you don’t use sales forms, you don’t need items. Not many organizations operate without sales forms, but here are a few examples of ones that do:

• Old Stuff Antiques sells junk—er, antiques—on consignment. Kate, the owner, doesn’t pay for the pieces; she just displays them in her store. When she sells a consignment item, she writes paper sales receipts. When she receives her cut from the seller, she deposits the money in her checking account.   

• Tony owns a tattoo parlor specializing in gang insignias. He doesn’t care how many tattoos he creates and—for safety’s sake—he doesn’t want to know his customers’ names. All Tony does is deposit the cash he receives upon completing each masterpiece.

• Dominic keeps the books for his charity for icebergless penguins. The charity accepts donations of money and fish, and it doesn’t sell any products or perform services to earn additional income. He deposits the monetary donations into the charity’s checking account and enters the checking account deposit in QuickBooks. Dominic does keep track of the donors’ contributions and fish inventory in a spreadsheet.

Should You Track Inventory with Items?

If your business is based solely on selling services, you can skip this section entirely. But if you sell products, it’ll help you understand your options. You can handle products in two ways: by stocking and tracking inventory or by buying products only when work for your customers requires them. The system you use affects the types of items you create in QuickBooks.

When you buy products specifically for customers, you need items, but you don’t have to track the quantity on hand. In this case, you can create Non-inventory Part items, which you’ll learn about shortly. For example, general contractors rarely work on the same type of project twice, so they usually purchase the materials they need for a job and charge the customer for those materials. Because general contractors don’t keep materials in stock, they don’t have to track inventory and can use Noninventory Part items.

On the other hand, specialized contractors like plumbers install the same kinds of pipes and fittings over and over. These contractors often purchase parts and store them in a warehouse, selling them to their customers as they perform jobs. These warehoused parts should be set up as Inventory Part items in QuickBooks. When you use QuickBooks’ inventory feature, the program keeps track of how many products you have on hand, increasing the number as you purchase them and decreasing the number when you sell them to customers.

Because tracking inventory requires more effort than buying only the materials you need, use the following questions to determine whether your business should track inventory:

• Do you keep products in stock to resell to customers? If your company stocks faux pony bar stools to resell to customers, those stools are inventory. By tracking inventory, you know how many units you have on hand, how much they’re worth, and how much money you made on the stools you’ve sold. On the other hand, the faux pony mouse pads you keep in the storage closet for your employees are business supplies. Most companies don’t bother tracking inventory for supplies like these, which they consume in the course of their business.   

• Do you want to know when to reorder products so you don’t run out? If you sell the same items over and over, keeping your shelves stocked means more sales (because the products are ready to ship out as soon as an order comes in). QuickBooks can remind you when it’s time to reorder a product.

• Do you purchase products specifically for jobs or customers? If you special order products for customers or buy products for specific jobs, you don’t need to track inventory. After you deliver the special order or complete the job, your customer has taken and paid for products, and you simply have to account for the income and expenses you incurred.

• Do you rent equipment to customers? If you rent or lease equipment, you receive income for the rental or lease of assets you own. In this case, you can show the value of the for-rent products as an asset in QuickBooks and the rental income as a Service item, so you don’t need Inventory items.

Your business model might dictate that you track inventory. However, QuickBooks’ inventory-tracking feature has some limitations. For example, it only lets you store up to 14,500 items. If you answer yes to any of the following questions, QuickBooks isn’t the program to use to handle the products you sell:

• Do you sell products that are unique? In the business world, tracking inventory is meant for businesses that sell commodity products, such as electronic equipment, and stock numerous units of each product. If you sell unique items, such as fine art or compromising Polaroid photos, you’d eventually hit QuickBooks’ 14,500 item limit. For such items, consider using a spreadsheet to track the products you have on hand. (If you still want to use QuickBooks, here’s one way to do it: When you sell your unique handicrafts, you can record your sales in Quick- Books by using generic non-inventory part items. For example, use an item called Oil Painting on the sales receipts for the artwork you sell and fill in more specific information about the painting in the sales receipt’s Description field.)

• Do you manufacture the products you sell out of raw materials? QuickBooks inventory can’t follow materials as they wend through a manufacturing process or track inventory in various stages of completion.

• Do you value your inventory by a method other than average cost? Quick- Books calculates inventory value by average cost. If you want to use other methods, like last in, first out (LIFO) or first in, first out (FIFO), you can export inventory data to a spreadsheet and then calculate inventory cost in a program other than QuickBooks.   Planning Your Items

• Do you use a point-of-sale system to track inventory? Point-of-sale inventory systems often blow QuickBooks’ inventory tracking out of the water. If you forego QuickBooks’ inventory feature, you can periodically update your QuickBooks file with the value of your inventory from the point-of-sale system.

Note: If you like the point-of-sale idea but don’t have a system yet, consider Intuit’s QuickBooks Point of Sale, an integrated, add-on product for retail operations that tracks store sales, customer info, and inventory.

 You don’t have to use QuickBooks’ inventory feature at all if you don’t want to. For example, if you perform light manufacturing, you can track the value of your manufactured inventory in a database or other program. Periodically, you can then add journal entries to QuickBooks to show the value of in-progress and completed inventory.