Ten types of items are all it takes to satisfy most of the sales needs of small businesses and nonprofit organizations. Learning what each type of item does seems like an unnecessary delay if you're anxious to start keeping books, but choosing the wrong type of item can lead to a dead end that only a major overhaul can fix. This section explains the ten item types. Avoid a six-Advil headache, and read it before you dive in.
Note
You can change only Non-inventory Part and Other Charge items into different types of items. Moreover, these two types convert only into Service, Non-inventory Part, Inventory Part, or Other Charge items. Because of this limitation, be careful when you change item types. If you make the wrong choice, you might not be able to change the item back.
Services are less tangible things that you sell, like time or the output of your brain. For example, you might sell consulting services, Internet connection time, magazine articles, or Tarot card readings. In construction, services represent phases of construction, which makes it easy to bill customers based on progress and compare actual values to estimates. 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 income.
The mighty Service item single-handedly manages all types of services, whether you charge by the hour or by the service, associated expenses or not.
Products you sell to customers fall into three categories: products you keep in inventory, products that you special order, and products you assemble. QuickBooks can handle inventory as long as your company passes the tests on page 77. Likewise, products purchased specifically for customers or jobs are no problem. As explained on page 78, QuickBooks can handle only lightly assembled products like gift baskets or gizmos made from widgets—and you'll need a QuickBooks Premier Edition to do even that.
In QuickBooks Pro, choose one of these two item types for the products you sell:
Inventory Part. Use this type of item for products you purchase and keep in stock for resale. Retailers and wholesalers are the obvious examples of inventory-based businesses, but other types of businesses track inventory, too. You can create Inventory Part items only if you turn on the inventory feature as described on page 145. With inventory parts, you can track how many you have, how much they're worth, and when you should reorder.
Non-inventory Part. If you purchase products specifically for a job or a customer and don't track how many products you have on hand, use Non-inventory Part items. Unlike an Inventory Part item, the Non-inventory Part item has at most two account fields: one for income and the other for expense.
Tip
Many companies don't bother with purchase orders, which are forms that record what you order from a vendor, to buy office supplies. But if you want to track whether you receive the supplies you bought, you can create purchase orders for them (page 273). Then use Non-inventory Part items for supplies you add to purchase orders but don't track as inventory.
If a line on a sales form isn't a service or a product, look to one of the following items:
Other Charge. The Other Charge item is aptly named, because you use it for any charge that isn't quite a service or a part—for instance, shipping charges, finance charges, or the charges for bounced checks. Other Charge items can be percentages or fixed amounts. For example, you can set up shipping charges as the actual cost for shipping or you can estimate shipping as a percentage of the product cost.
Tip
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, enter a negative percentage so QuickBooks deducts the retainer from the invoice. When your customer approves the job, create an invoice using another Other Charge item, called Retention, to charge the customer for the amount they withheld.
Subtotal. You'll need Subtotal items if you charge sales tax on the products you sell or discount only some of the items on a sales form. The Subtotal item adds up all the preceding entries up to the last subtotal item, which 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.
Group.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 demonstrated in Figure 4-2, you can show or suppress the individual items that a Group item contains.
Discount. As a bookkeeper, you know that a discount is an amount you deduct from the standard price you charge. Volume discounts, customer loyalty discounts, or sale discounts are examples, and the Discount item in QuickBooks 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 4-2. Top: When you add a Group item to an invoice, QuickBooks replaces that one item with all the individual items along with their prices, descriptions, and whatever else you've defined. To show these items on the invoice, turn on the "Print items in group" checkbox. Bottom: For fixed-price invoices , which you use when you charge the customer a fixed amount regardless of how much or little it costs you to deliver, you don't want to show the underlying prices for each item you deliver. When you create a Group item and turn off the "Print items in group" checkbox, you still see all the individual items in the Create Invoices dialog box, but the invoice you generate to send to the customer shows only the Group item itself along with the total cost for all the items in the Group.
Note
Early payment discounts don't appear on a sales form, because you won't know that a customer pays early until long after the sales form is complete. You apply early payment discounts in the Receive Payments dialog box, described on page 240.
Payment. When your customers send you payments, you can log them into 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 log 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, as shown in Figure 4-3.
Figure 4-3. Top: A Payment item reduces the balance on an invoice by the amount the customer paid. Bottom: A Payment item also executes the equivalent of a Receive Payments command. A Payment item assigns the payment method that the customer used and deposits the funds into a bank account, or groups the payment with other undeposited funds.
Sales Tax. If you sell products and must charge sales tax to satisfy your state or local tax authority, create Sales Tax items for each tax levied. For example, suppose local and state taxes apply to products you sell in your store, but for customers to whom you ship goods in other states, sales taxes for those other states apply. You can create separate Sales Tax items for your local tax and the state sales taxes for each state in which you do business. See page 298 to learn how to activate the sales tax feature.
Sales Tax Group. Like the Group item, the Sales Tax Group item applies several Sales Tax items at once, which speeds up adding Sales Tax items to invoices when you sell products in a location that levies sales taxes exuberantly.
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