Items vs Expense for Job Costing

I’ve been discussing how to setup and use Items in QuickBooks.   What I’ve seen is many really don’t understand how Items work in QuickBooks, from bookkeepers to accountants to QuickBooks consultants. I will admit that for many years, I was guilty of this, too – but I thought I understood them (just as many others do)!

Items let you see detail in your business instead of having to put all the detail in your Chart of Accounts (which is often what I see).  On an Invoice, you have no choice but to use an Item.  However, that’s not the case for a bill (or check or credit card charge).  You have a choice of using either the Expense tab or the Items tab. Most people use the Expense tab and select an expense or Cost of Goods account (like Job Materials).  But for contractors who want to job cost in QuickBooks, I recommend using the Items tab.

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While the Expense or Cost of Goods account may be the correct account for that expense, several of your reports will be incomplete.  How often have you run a Job Profitability report and then needed to double-click on “No Item” to get your detail?  So you end up running/printing 2 reports instead of one.  In the above example, that expense will be a part of that “No Item” number on a Job Profitability Detail report.  “No Item” simply means you did not use an Item when you entered the expense. (The numbers get even more confusing if you did not have an expense or Cost of Goods associated with the Item, as shown in our article on Item Setup).

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So when do you use which tab?   A good rule of thumb is to use the Items tab when it’s for a customer job/project and the Expense tab for Overhead. When you use the Items tab, you can then select the appropriate Item from your Items List.

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So here’s that same expense only now as an Item and notice the change in the report. Also note how much easier it is to review your labor and materials detail here instead of having to look in two places.

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So for those of you who work with projects or jobs, take a look at your Job Profitability Detail Report or your Estimated vs Actual Detail and see if you have many “No item”.  That “little” change can make a big difference in your reporting.

Once you start using this new system, your reports will start to be more meaningful and take less time to create, and use less paper!

Contact our office if you have questions or need any assistance.

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