Understanding Items in QuickBooks
I started using QuickBooks® back in 1996, thinking it was just another piece of software I could easily learn. Boy, did I underestimate QuickBooks! But, many years and certifications later, I’ve learned sooo much yet still find myself learning since there are new features every year and different businesses have different needs. One feature in QuickBooks that took me a few years to really understand was “Items.”
Items are probably one of the most misunderstood components of QuickBooks. They are designed to simplify data entry and allow a lower-level employee to enter information without incorrectly affecting reports. When set up and used correctly, they can help provide lots of valuable information on profitability of different components of the business. However, if the Items are not set up correctly or consistently used, then the problems start. Cleaning up Items can be time consuming and the errors can have a significant impact on the profitability and net worth of a company. And, a key concept to keep in mind is, journal entries do NOT affect Items – only the Chart of Accounts, so a journal entry won’t quickly fix the problem.
So what exactly is an Item? An Item is a tool that posts to your Chart of Accounts. It can be a product, service that your company buys and sells or a charge or tax from your company or vendor or a even a discount or payment. The first step in setting up an new Item is to select the Type. While there are several Types of Items, the list below contains the basic ones.
- Service – work, either performed BY your company for a client/customer or FOR you by a vendor/subcontractor.
- Inventory – products you make or buy then sell; you keep these Items on hand for future sales.
- Non-Inventory – products you buy or sell for a customer job/project, but do not stock.
- Other Charge – shipping, delivery fee, fuel surcharge, finance charge.
- Subtotal – totals Items above (up to the last subtotal); useful when applying discounts/surcharges or separating labor from parts.
- Discount – subtracts a percent or dollar amount of the line above.
Many users, not knowing any better, select the wrong Type. Some users select Service because it’s first in the list. Some use Inventory because it’s something they have on hand – like different kinds of nails for the shop or bags of flour for baked products. However, if these are Items you use but don’t resell, then they’re technically not Inventory – so use non-Inventory. You can change Other Charge, Non-Inventory or Inventory to a different Type, but you cannot change Service, Payment, or Discount to another Type.
When you try to change an Item, QuickBooks will ask if you want to have this change to update existing transactions. Check with your accountant on this. If this is your first year and your taxes aren’t done, then it’s probably okay to say yes, but this can affect previous years’ numbers, so most times, it might be best to say no and find other ways to fix numbers from old transactions. If an Item was setup as a wrong Type and can’t be changed, then make it inactive and create a new Item.
Next time I’ll discuss another way Items can be set up incorrectly. So how’s your Items List?