Conservation can be as important with QuickBooks’ items as it is for the environment. QuickBooks Pro and Premier can hold no more than 14,500 items, which is a problem if you sell unique products, such as antiques, or products that change frequently, such as the current clothing styles for teenagers. Once you use an item in a transaction, you can’t delete that item, so your item list could fill up with items you no longer use (see Deleting Items).

By planning how specific your items will be, you can keep your QuickBooks list lean with generic items. For instance, a generic item such as Top can represent a girl’s black Goth t-shirt one winter and a white poplin button-down shirt the next summer.

Generic items have their limitations, though, so use them only if necessary. You can’t track inventory properly when you use generic items. QuickBooks might show that you have 100 tops in stock, but that doesn’t help when your customers are clamoring for white button-downs and you have 97 black Goth t-shirts. In addition, the information you store with a generic item won’t match the specifics of each product you sell. So, when you add generic items to an invoice or sales form, you’ll have to edit a few fields, such as description or price, as you can see in Figure 5-2.

Figure 5-2. QuickBooks automatically fills in fields like description and price with values you’ve saved in item records. But you can edit those fields once you add an item to an invoice, whether you use generic or specific items to describe what you sell. Just click a field in a sales form, select the text you want to change, and type the new value.

Brevity and recognizability are equally desirable characteristics when naming items. On the one hand, short names are easier to type and manage, but they can be unintelligible. Longer names take more effort to type and manage, but are easier to read. Decide ahead of time which type of naming you prefer and stick with it as you create items.

QuickBooks encourages brevity by allowing no more than 31 characters in an item’s name. If you sell only a handful of services, you can name your items as you would when you’re talking. For a tree service company, names like Cut, Limb, Trim, Chip, and Haul work just fine. If your item list runs in the hundreds or thousands, some planning is in order. Here are some factors to consider when naming your items:

If you keep all your personal papers in one big stack, you probably have a hard time finding everything from birth certificates to tax forms to bills and receipts. If you’ve got one big list of items in QuickBooks, you’re in no better shape. To locate items more easily, consider designing a hierarchy of higher-level items (parents) and one or more levels of subitems, as shown in Figure 5-3. The box on Creating Items explains how to make sure you have items for every purpose.

For example, a landscaping business might create top-level items for trees, shrubbery, cacti, and flower bulbs. Within the tree top-level item, the landscaper might create items for several species: maple, oak, elm, sycamore, and dogwood. Additional levels of subitems can represent categories such as size (seedling, established, and mature, for example).

Figure 5-3. In the Item List window, the Hierarchical View indents subitems, making it easy to differentiate the items that you use to categorize the list from the items you actually sell. If you work with long lists of subitems, the parent might scroll off the screen. To keep the hierarchy of items visible at all times, in the menu bar at the bottom of the window, click Item and then choose Flat View. QuickBooks uses colons to separate the names of each level of item and subitem.

As described in the box on Product Items, dollars move between accounts as you buy and sell inventory. Here’s how you can use the fields for an Inventory Part item (shown in Figure 5-7) to define your company’s inventory money trail and, at the same time, keep track of how much inventory you have:

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. See Paying Your Bills to learn how to charge your customer for these reimbursable expenses.

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:

The Other Charge item is aptly named because you use it for any charge that isn’t quite a service or a product—for instance, shipping charges, finance charges, or bounced check charges. Other Charge items can be percentages or fixed amounts. For example, you can set up shipping charges as the actual cost of shipping, or estimate shipping as a percentage of the product cost.

If a customer holds back a percentage of your charges until you complete the job satisfactorily, create an Other Charge item for the retainer (that is, the portion of your invoice that the customer doesn’t pay initially). In this case, when you create the invoice, enter a negative percentage so QuickBooks deducts the retainer from the invoice total. When your customer approves the job, create another invoice, this time using another Other Charge item, called Retention, to charge the customer for the amount she withheld.

For Other Charge items, the checkbox for hiding or showing cost fields comes with the label “This item is used in assemblies or is a reimbursable charge”. For example, turn on this checkbox when you want to set the Cost field to what you pay and set the Sales Price field to what you charge your customers. You’ll see the same sets of fields for purchases and sales as you do for Service and Non-inventory Part items.

Alternatively, you can create charges that don’t link directly to expenses by turning off this checkbox. You can create a percentage, which is useful for calculating shipping based on the value of the products being shipped, as shown in Figure 5-8. When you turn off the “This is used in assemblies or is a reimbursable charge” checkbox, the Cost and Sales Price fields disappear, and the “Amount or %” field takes their place. If you want to create a dollar charge (like the dollar value charge for a country club’s one-time initiation fee), type a whole or decimal number in this field.

You’ll need Subtotal items if you charge sales tax on the products you sell, or if you discount only some of the items on a sales form. You need only one Subtotal item, because a Subtotal item does only one thing—it totals all the amounts for the preceding lines up to the last subtotal. That means you can have more than one subtotal on an invoice. For example, you can use one Subtotal item to add up the services you sell before applying a preferred customer product discount and a second Subtotal for product sales when you have to calculate sales tax. Because you can’t change a Subtotal item’s behavior in any way, a Subtotal item has just two fields: Item Name/Number and Description. You can type any name and description you wish in these fields, but in practically every case, Subtotal says it all.

Figure 5-8. To create a percentage-based charge, type a number followed by % in the “Amount or %” field. To set a dollar value, type a number as shown here.

The Group item is a great timesaver, and it’s indispensable if you have a tendency to forget things. Create a Group item that contains items that always appear together, such as each service you provide for a landscaping job. As shown in Figure 5-9 you can show or suppress the individual items that a Group item contains. When you add this Landscaping Group item to an invoice, QuickBooks automatically adds the Service items for phases, such as Excavation, Grading, Planting, and Cleanup.

You can also use a Group item to hide the underlying items, which is useful mainly when you create fixed-price invoices (Applying Subtotals, Discounts, and Percentage Charges) and you don’t want the customer to know how much profit you’re making. Here’s how you set up a Group item to do these things:

As a bookkeeper, you know that a discount is an amount you deduct from the standard price you charge. Volume discounts, customer loyalty discounts, and sale discounts are examples, and QuickBooks’ Discount item calculates deductions like these. By using both Subtotal and Discount items, you can apply discounts to some or all of the charges on a sales form.

Figure 5-10. When you add a Group item to an invoice and display all the underlying items, QuickBooks fills in the Description cells for each individual item with the contents of its Description field. In the New Item or Edit Item dialog boxes when you work on a group item, the background of the Description column is a different color to indicate that you can’t edit these cells.

The Discount item deducts either a dollar amount or a percentage for discounts you apply at the time of sale, such as volume discounts, damaged goods discounts, or the discount you apply because your customer has incriminating pictures of you.

The fields for a Discount item are similar to those of an Other Charge item with a few small differences:

When your customers send you payments, you can record them in your QuickBooks file using the Receive Payments command. If you’re in the middle of creating invoices when the checks arrive, it’s easier to record those payments by adding a Payment item to the customers’ sales forms. A Payment item does more than reduce the amount owed on the invoice (see Figure 5-11).

Beyond the Type, Item Name/Number, and Descriptions fields, the Payment item boasts fields unlike those for other items. The fields for a Payment item designate the method of payment that a customer uses and whether you deposit the funds to a specific bank account or group them with other undeposited funds. For example, if your customers send checks, you save up the checks you receive each week and make one trip to deposit them in your bank. Banks sometimes transfer credit card payments into a bank account individually and sometimes group all the charges for the same day.

Figure 5-11. A Payment item (here, a check) reduces the balance on an invoice by the amount the customer paid. That Payment item also executes the equivalent of a Receive Payments command: it deposits the funds into a bank account, or groups the payment with other undeposited funds.

Here’s what the payment fields do:

Sales tax codes are QuickBooks’ way of letting you specify whether to apply sales tax. Out of the box, the Sales Tax Code List comes with two self-explanatory options: Tax and Non. If you’d like to further refine taxable status, for example, to specify why a sale isn’t taxable, you can add more choices.

You can apply tax codes in two places: to customers or to individual sales items. For example, nonprofit organizations and government agencies are usually tax-exempt (Non). In many states, food and services aren’t taxable, although some states tax almost everything.

QuickBooks’ built-in sales tax codes are fine for turning taxable status on and off at will, but you also have to tell QuickBooks the sales tax rate and which tax authority levies the tax. If you sell products in more than one state, Sales Tax items are the way to deal with varying tax regulations. Like the IRS, each tax agency wants to receive the taxes it’s due. To track the taxes you owe to each agency, create a Sales Tax item for each agency. Also, if you sell products through direct mail, you’ll need a Sales Tax item for each state you ship to, as described on Sales Tax Items.

For example, suppose both local and state taxes apply to products you sell in your store. And, for customers to whom you ship goods in other states, sales taxes for those other states apply as well. You can create separate Sales Tax items for your local tax and the state sales taxes for each state in which you do business. Or, if one tax authority collects several sales taxes, QuickBooks has its Sales Tax Group feature (Modifying Items) to help you collect them all in one shot.

Unlike sales tax codes, which can apply to both customers and products, Sales Tax items apply only to customers, which makes sense when you think about it, since sales tax rates usually depend on the customer’s location. If the customer is in the boonies, you might assign the state Sales Tax item because the customer pays only that one tax. Alternatively, a customer smack in the middle of downtown might have to pay state tax, city tax, and a special district tax. If you assign Sales Tax items to customers (Hiding and Deleting Items), QuickBooks automatically fills in the Sales Tax item on your invoices to show the customer the sales taxes they pay.

To create a Sales Tax item, in the New Item dialog box, from the Type drop-down list, choose Sales Tax Item. Then fill in the fields (see Figure 5-12) as follows:

Figure 5-12. The Tax Name field can include up to 31 characters—more than enough to use the 4- or 5-digit codes that many states use for sales taxes. The Tax Rate (%) field sets the percentage of the sales tax. The Tax Agency drop-down list shows the vendors you’ve set up, so you can choose the tax agency to which you remit the taxes. If a tax authority collects the sales taxes for several government entities, a Sales Tax group is the way to go. (See the box on Modifying Items.)

If you’ve sold an item in the past, then the only way to remove it from the Item List is to hide it. Hiding items means that your Item List shows only the items you currently use. You’ll scroll less to find the items you want and you’re less likely to pick the wrong item by mistake. If you start selling an item again, you can reactivate it so that it appears on the Item List once more. If you’re wondering how you make an item reappear if it isn’t visible, here’s a guide to hiding and reactivating items in your Item List:

If you find that you’re constantly hiding items that you no longer sell, your item list might be too specific for your constantly changing product list. For example, if you create 100 items for the clothes that are fashionable for teenagers in May, those items will be obsolete by June. Consider creating more generic items, such as pants, shorts, t-shirts, and bathing suits. You can reuse these items season after season, year after year, without worrying about running out of room on the Item List, which is limited to 14,500 items.

If you improperly create an item and catch your mistake immediately, deleting the offender is no sweat. Use any one of these methods to delete an item:

If you try to delete an item that’s used in even one transaction, QuickBooks warns you that you can’t delete it. Say you created an item by mistake and then compounded the problem by inadvertently adding the item to an invoice. When you realize your error and try to delete the item, QuickBooks refuses to oblige. If you used the item in one or two recent transactions, you can probably find those transactions and replace the item without thinking too hard. (Open the Item List by choosing Lists → Item List. Right-click the item and choose QuickReport on the shortcut menu. QuickBooks displays a report with all the transactions using that item.) When you’ve removed the item from all transactions, use one of the methods above to delete it.

If you blasted out a bunch of transactions, it’s easier to find the transactions with the “Sales by Item Detail” report, which includes a heading for each item you sell, and groups transactions underneath each heading. If you sell lots of items, you probably want the report to show the transactions only for the item you want to delete. Here’s how you modify the “Sales by Item Detail” report and then edit the transactions: