Chapter 5
Creating Items for What You Sell
In this chapter:
• Understand how QuickBooks uses items
• Understand the different types of items that QuickBooks uses
• Create an item
• Set up sales tax items
In QuickBooks, you use items to list the things you sell on an invoice and other sales-related transactions. You can also use items on a bill to tell QuickBooks about the things you’re buying from a vendor. An item can be a product (that you may or may not be tracking as inventory), a service, or another necessary entry on a sales or purchase transaction.
What other items could be used in a transaction besides products and services? Well, think about the many different elements you see on an invoice. Are you required to charge sales tax? If you do, that’s an item. Do you accept prepayments or give discounts? Those are items. Do you subtotal sections of your invoices to apply discounts or taxes? That subtotal is also an item. Do you charge for shipping or restocking fees? Those are items.
In this chapter, the different types of items you can use in QuickBooks are covered in detail, with the exception of inventory items (which are covered in detail Chapter 15) and payroll items (covered in Chapter 20).
Understand How Items Are Used
Items are most often used in sales-related transactions where each line in an invoice, for example, includes an item that represents a product or service that you sell. What’s more, every item you create is linked to an income account in your chart of accounts, so that when you’re creating a transaction you don’t have to worry about the account to which any individual line item on an invoice or sales receipt is posted—your item takes care of all that behind-the-scenes accounting for you.
Most items are linked to an income account, because most of the items that appear on a sales transaction are things you’re selling to the customer. You can link all of your items to one income account in your chart of accounts (called “Income” or “Sales”), or you can track different types of items by linking them to different income accounts. For example, you might want to link all product sales to an income account named “Product Sales” and link the services you sell to an income account named “Service Sales.” The advantage of linking certain types of items to certain income accounts is that when you look at a standard Profit & Loss report, you can tell at a glance what your sales totals are for each group of item types. You can also create reports on your items themselves so you can see your sales total, by item, for a particular month, for example. QuickBooks also offers several item reports that give you insight into details such as your best sellers and your most profitable and least profitable items, to name a few. You’ll read more about reports in Part Six.
Some items, however, are not linked to income accounts, because they’re not considered income. For example, sales tax isn’t income to you, it’s money you collect on behalf of your state or local government, and eventually you have to account for and turn that money over to them. Because you’re holding someone else’s money, sales tax items are linked to a liability account.
Discounts you give your customers are items, too, and you should link them to accounts specifically designed for that purpose. That way, you can easily see in your reports the savings and incentives that you’ve passed on to your customers.
As you can see, items are a bit more varied than you may have thought, but creating and configuring them is not so complicated if you follow the steps outlined in this chapter.
Understand Item Types
QuickBooks needs to categorize the items that you add to your Item List, and it does this by using item types. Because it sometimes may not be obvious which type you should use, the following examples are provided as a guide to help you make the right choices:
• Service This is a service you provide to a customer. You can create service items that are charged by the job or by the hour and are performed by an employee or an outside contractor.
• Inventory Part This is a product you buy for the purpose of reselling. Inventory parts are treated in a special way; you post their cost as you sell them, not when you write the check to purchase them. This item type isn’t available if you haven’t turned on the inventory tracking feature in the Items & Inventory section of the Preferences dialog. Setting up and managing inventory requires that you understand the ground rules and valuation method that QuickBooks uses. Be sure to refer to Chapter 15 if you plan on tracking inventory, as it covers this topic in great detail.
• Non-inventory Part This item type is a product you buy and sell but don’t track as inventory, such as merchandise that is always drop shipped to a customer, as well as products you buy but don’t necessarily sell, such as boxes and bubble wrap for shipping products.
• Other Charge You’ll use this item type for things like shipping charges or other line items that don’t fit into a service or product item.
• Subtotal This item type automatically adds up the line items that come immediately before it on a sales transaction. It provides a subtotal before you add other charges or subtract discounts.
• Group This item type can be a big time saver because it’s used to enter a group of individual items that you typically sell together, instead of entering each individual item on the sales transaction. For example, if you always have a shipping charge accompanying the sale of a particular item, you can create a group item that includes those two items. To create a group item, each item must first exist on its own in your Item List.
• Discount When entered on a sales transaction, this item allows you to apply either a percentage or dollar discount to the item immediately above it. You may want to create more than one item that falls within this item type—for example, a discount for wholesale customers and a discount for a volume purchase. When you create a discount item, you can indicate a flat dollar value or percentage of the original price.
• Payment If you receive an advance payment from a customer, for either the total of the invoice amount or a partial payment as a deposit, you indicate it as a line item on an invoice using this item type.
• Sales Tax Item Create one of these item types for each sales tax authority for which you collect sales tax. This item type is available to you only if the sales tax preference is enabled. See the section “Collect Sales Tax Using Sales Tax Items” later in this chapter.
• Sales Tax Group This is a way for you to apply (and track) multiple sales tax rates on a customer sales transaction.
Build Your Item List
The information that QuickBooks needs to create an item depends on the type of item you’re creating. Although service items are relatively simple to create, inventory items require a bit more planning, which is why they are covered in greater detail in Chapter 15. Let’s start by learning how to create a service item.
How to Create a Service Item
Regardless of the type of item you want to create, the process of building your item starts by choosing Lists | Item List from the menu bar. With the Item List open, press CTRL-N. The New Item window opens. The Type field at the top has a drop-down menu that displays a list of available item types (as described in the previous section). Select Service as the type. Figure 5-1 shows an example of the fields used to create a new Service type item called “Design Services.”
FIGURE 5-1 |
The fields in the New Item dialog hold the information that QuickBooks needs to take care of all the “behind the scenes” accounting for you. |
The Item Name/Number field is the place to insert a unique identifying code for the item. In this case, the Item Name/Number can simply be the service that’s being offered—in our example, it’s Design Services. Later, when you are filling out invoices (or other sales or purchasing related transactions), this is the identifier you see in the drop-down list.
Next you see the Subitem Of check box. If you wanted to make Design Services a subitem of another item called Architectural Services, for example, you would check this box. Why would you want to use subitems? First, it gives you the ability to track the sales and purchases of an item at either a summary or detail level. Second, it allows you to organize a complex Item List in a way that makes sense to you and others in your company.
ProAdvisor Tip: Subitems are a convenient way to list your items in your Item List in a logical order. For example, if you’re a distributor of lighting fixtures, you might create a parent inventory item called Bath/Vanity fixtures and list the individual items that you sell under that category as the subitems. Creating and using subitems is covered in more detail in Chapter 15.
Next you see the option to tell QuickBooks if this service is used in assemblies (only QuickBooks Premier and Enterprise Editions offer the assembly feature) or is performed by a subcontractor or partner. When you check this box, the item record expands to include fields that allow you to link both the expense side of this item as well as the income side to different accounts in your chart of accounts, as shown next:
Use the drop-down arrow next to the Expense Account field to select an appropriate expense account from your chart of accounts. You can fill in the Cost field here or leave it at zero if you pay more than one rate for that service to different subcontractors. Later, when you pay the vendor you’ve hired as a subcontractor for this service, you’ll select this item (using the Items tab on either the Write Checks or Enter Bills windows) and fill in a cost.
In the Sales Price field, enter the amount or hourly rate you charge for this service. You can leave this field at zero if your business doesn’t have a standard rate for this service and it makes more sense for you to fill it in when you create an invoice or sales receipt. Next, be sure to use the Tax Code drop-down arrow to indicate whether or not this service is taxable, and then choose which income account you want QuickBooks to link this item to. Use the Notes button to open a notepad to record and store any special information that you want to keep track of about this item.
When you’re done, click OK to return to the Item List or click Next to create another new item.
Create Custom Fields for Items
With custom fields, you can capture and use unique information about the products and services you sell. For example, you may want to add information about the size or color of an item that you carry in stock or identify the location in your warehouse where a particular part is stored. You can create up to five fields by following these steps:
1. Open the Item List and select an item.
2. Press CTRL-E to edit the item.
3. Click the Custom Fields button. (The first time you create a custom field, a message appears telling you that there are no custom fields yet defined; click OK.)
4. When the Custom Fields dialog appears, click Define Fields.
5. When the Set Up Custom Fields For Items dialog opens, enter a name for each field you want to add:
6. Place a check mark in the Use column to use the field.
7. Click OK.
As you create your fields, keep in mind that all fields are shared among all the items in your Item List (with the exception of subtotals, sale tax items, and sales tax groups), whether they’re inventory, non-inventory, or service items. In addition, the maximum number of fields available to you is five. Refer to Chapter 24 to learn more about how to add these fields to your invoice and other forms (QuickBooks calls these templates).
Creating the Other Items in Your Item List
Although many of the fields in the New Item window are fairly similar, regardless of the type of item you’re creating, some fields are particular to the type of item you’re creating. The following section covers these other item types while also pointing out any unique fields you should be aware of.
Non-inventory Items
As with service items, you have the option of making a non-inventory item “two-sided,” meaning when you check the This Item Is Used In Assemblies Or Is Purchased For A Specific Customer:Job box, you can designate both an income and expense account at the same time (see Figure 5-2).When you enable this function, you’re making many of the standard QuickBooks item and job-related reports much more valuable.
FIGURE 5-2 |
Create a non-inventory part when you don’t need to track on-hand quantities. |
If the vendor that you purchase this item from references this non-inventory part using their own unique number, you can store that number in the Manufacturer’s Part Number field. This information then becomes available to you when you make purchases from that vendor.
Other Charge Items
Other charge items are generally used to list amounts for things like shipping and handling or any other miscellaneous charges that you want to appear on a sales transaction. A key feature of this item type is that it can also be set up as a percentage of another item by listing it directly below the line item that you want it to refer to.
Subtotal Items
This is a very useful item type because it allows you to add and total groups of items within the body of an invoice or sales receipt. It’s very easy to use: simply list the subtotal item immediately after the list of items that you want to display a subtotal for.
Group Items
A group item is an efficient way to list items that you typically sell together on an invoice or sales receipt. For example, you may run a promotion where you bundle discounted installation services with the purchase of a high-end lighting fixture. In this case, you would create a group item that includes the fixture and the installation as a single item (see Figure 5-3).
FIGURE 5-3 |
When you use a group item, you can choose to show all the items on a sales transaction or show only one description line. |
Before you attempt to create a group item, be sure that the individual items have already been entered into your Item List. Then follow these steps:
1. From the Item List, press CTRL-N to open the New Item window.
2. Select Group from the Type drop-down list.
3. Create a name for the new group in the Group Name/Number field.
4. Optionally, enter a description. Note that whether or not you select the Print Items In Group option (which ensures that individual items in the group will appear in the transaction), your entry in the Description field is what will appear on the printed sales transaction—unless you decide to change it.
5. Select each item that is to be part of this group and enter the quantity (if applicable) for each item.
6. Click OK.
Discount Items
A discount item works by affecting the line item immediately preceding it. When you create an item, you can indicate either a flat rate or a percentage discount.
Payment Items
Payment items are used to record the receipt of a partial payment on a sale. When listed on an invoice, a payment item reduces the balance due.
ProAdvisor RecommendsThe Importance of Items for Job Costing
Because items are most often associated with sales transactions, many QuickBooks users who are service-based are not accustomed to using them in purchase transactions (bills and checks). Make sure that when you’re entering a bill (covered in Chapter 11) or check that relates to a purchase you’ve made for a specific customer job, you click the Items tab (instead of the Expenses tab) and select the service or non-inventory part item that you used on the sales transaction for that customer job (see the example shown here).
In addition, be sure that this item is “two-sided” (see the “Non-inventory Items” section earlier in this chapter). Following this logic gives you the ability to take full advantage of the many job-related reports that come with QuickBooks Pro. For example, from the Reports menu, select Jobs, Time & Mileage. You’ll see several reports designed to give you insight into precisely where you’re making (or losing) money on a job and how your original estimate for a job compares to your actual costs and revenues for that job as of a particular date.
Changing Item Prices
If you want to implement a price increase (or decrease) for one or more of the services or products you sell, use the Change Item Prices window.
1. From the Customers menu, select Change Item Prices.
2. In the Change Item Prices window, use the Item Type filter to list only those items of a particular type (Service, Inventory Part, Inventory Assembly, Non-inventory Part, or Other Charge).
3. Place a check mark next to the items subject to a price change and tell QuickBooks if the price change should be calculated as an amount or as a percentage of the item’s cost or its current price.
4. If you’d like QuickBooks to round up the adjustment, use the Round Up To Nearest drop-down menu to choose a rounding option. Otherwise, you can leave this option at its default of No Rounding.
5. Click the Adjust button to effect the change, and then click OK.
Collect Sales Tax Using Sales Tax Items
If you collect and remit sales tax, you need to configure your Sales Tax Preferences and set up tax codes to link to your customers so you know whether a customer is liable for sales tax. You also need to set up tax items so you can set a percentage rate for the sales tax to be collected and link the item to the taxing authority to which you’ll be remitting the collected sales tax.
Start your sales tax setup by choosing Edit | Preferences from the menu bar. Click the Sales Tax icon in the left pane and select the Company Preferences tab to see the window shown in Figure 5-4.
FIGURE 5-4 |
Set up your most common sales tax using the Sales Tax Preferences. |
If you used Advanced Setup and you didn’t enable the sales tax feature, you can do it now by selecting Yes for the option labeled Do You Charge Sales Tax? The following sections cover the other options in this dialog.
Sales Tax Items
A sales tax item is really just a collection of data about a sales tax, including the rate and the agency to which the sales tax is remitted. QuickBooks uses sales tax items to calculate the Tax field at the bottom of sales forms and to prepare reports for you so that you can send the correct amounts due each period to your local taxing authority. You can create your first sales tax item here in the Sales Tax Preferences or directly in your Item List (see the section “Creating Sales Tax Items in the Item List” a bit later).
Most Common Sales Tax
The Sales Tax Company Preferences dialog (as shown in Figure 5-4) includes a field named Your Most Common Sales Tax Item, and you must enter a sales tax item in that field. Of course, to do that, you must first create at least one sales tax item. This item becomes the default sales tax item for any customers you create hereafter, but you can change any customer’s default sales tax item any time.
Creating Sales Tax Items in the Item List
Once the Sales Tax Preference has been set, you can create a sales tax item directly in your Item List by following these steps:
1. Select Lists | Item List from the main menu to open the Item List.
2. Press CTRL-N to open the New Item dialog.
3. Select Sales Tax Item as the item type.
4. Enter a name for the item. You can use the state’s code for the specific sales tax rate and taxing authority. You can also enter a description, although that’s optional.
5. Enter the tax rate.
6. Select the tax agency (a vendor) to which you pay the tax from the drop-down list, or add a new vendor by choosing <Add New>.
7. Click OK.
Sales Tax Codes
Sales tax codes are used by QuickBooks to designate an item as taxable or nontaxable when that item is listed on a sales transaction. However, it’s not difficult to create codes to track sales tax status in a manner more detailed than taxable and nontaxable: you just add new sales tax codes to fit your needs.
Follow these steps to add a new sales tax code:
1. Select Lists | Sales Tax Code List.
2. Press CTRL-N to open the New Sales Tax Code window.
3. Enter the name of the new code (up to three characters in length).
4. Enter a description.
5. Select Taxable if you’re entering a code to track taxable sales.
6. Select Non-taxable if you’re entering a code to track nontaxable sales.
7. Click Next to set up another tax code.
8. Click OK when you’ve finished adding tax codes.
Although you can always use the default nontaxable code that QuickBooks provides, called “Non,” you may be required (depending on your state sales tax agency) to provide further definition of your nontaxable sales to identify nonprofit organizations, government agencies, sales to resellers, or out-of-state customers, for example. The same logic may apply to taxable customers as well; some state agencies will require that you provide a breakdown of your company’s taxable sales.
Caution: It’s always a good idea to check in with your local taxing authority prior to setting up your sales tax codes and items. This will help ensure that you’re capturing the correct sales tax amounts and that the sales tax reports you run in QuickBooks (which are very dependent on how you set up sales tax items and groups) will be accurate.
Sales Tax Payment Basis
There are two ways to remit sales tax to the taxing authorities, and they’re listed in the When Do You Owe Sales Tax section of the Sales Tax Preferences dialog:
• As Of Invoice Date, which is accrual-based tax reporting
• Upon Receipt Of Payment, which is cash-based tax reporting
Check with your accountant (and the local taxing authority) to determine the method you need to select. Each state has its own reporting rules.
Sales Tax Payment Dates
You must indicate the frequency of your remittance to the taxing authority in the When Do You Pay Sales Tax section of the Preferences dialog. Your sales tax licensing agency dictates the schedule you must use.
Create and Use Tax Groups
A tax group is a collection of two or more individual tax items that are displayed as one tax to a customer on a sales transaction. For example, you might be required to collect 6.25 percent state sales tax in addition to 5 percent county sales tax because of the county your business operates from. This is especially important in some states where city, county/parish, and state portions are paid to different tax entities.
When you use a sales tax group, QuickBooks keeps track, behind the scenes, of which taxing authority the tax collected is due to, but the customer sees only a 11.25 percent sales tax rate (see Figure 5-5).
FIGURE 5-5 |
A sales tax group is made up of sales tax items. |
To create a tax group, you must first create the individual tax items and then add those items to the group item. Follow these steps to create a tax group:
1. Open the Item List by choosing Lists | Item List.
2. Press CTRL-N to open the New Item dialog.
3. Select Sales Tax Group as the Type.
4. Enter a name for the group.
5. Enter a description (which appears on your sales forms).
6. In the Tax Item column, choose the individual tax code items you need to create this group. (QuickBooks fills in the rate, tax agency, and description of each tax you already selected.) Notice that the calculated total (the group rate) appears at the bottom of the dialog.
7. When all the required tax code items have been added, click OK.
Assigning Sales Tax Codes and Items to Customers
When you turn on the Sales Tax preference and create your first sales tax item, QuickBooks asks if you want to make all of your customers as well as your inventory and non-inventory parts taxable, as shown next:
If you do not deselect either of these options, QuickBooks will apply the “taxable” tax code to all customers and to your inventory parts as well. You can modify this setting at the customer level in the Sales Tax Settings tab of a customer’s record.
If your Customers list is large, opening each record to make this change to several records can be quite tedious and time consuming. Instead, you can use the Add/Edit Multiple List Entries window to assign or change the tax items or codes for multiple customers in a single view.
To utilize this feature, from within the Customer Center, point your mouse anywhere on the Customer:Job list and right-click. Select Add/Edit Multiple Customers:Jobs to open the Add/Edit Multiple List Entries window. You may have to customize the columns in this window to bring these fields into view.
ProAdvisor Tip: You can use the Add/Edit Multiple List Entries window to modify the tax code setting for your items as well. With your Item List open, right-click anywhere in the list and select Add/Edit Multiple Items to open the Add/Edit Multiple List Entries window.
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