Create Items. Lesson 4-1 What is an Item in Quickbooks? Introduction to Accounting with Quickbooks Cookbook Jose Zaragoza

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1 Create Items Lesson 4-1 What is an Item in Quickbooks? Let s learn what an item is. In simple terms, the products and services that your company sells to consumers are called items. If your company sells Long Stem Red Roses for $1.50, then you will create an item called Long Stem Red Roses in QuickBooks. If your company offers a service such as washing cars, then you will create an item called Car Wash in QuickBooks. To further illustrate what an item is, think about your most recent trip to the grocery store. When you purchased groceries, you may have purchased bread, milk and eggs. The bread, milk and eggs were the items listed on your receipt along with the price. Before you purchased those items, the grocery store had to list those items in their accounting software before you could buy them. You will do the same thing for your business in QuickBooks. There are several types of items that must be categorized in QuickBooks. If your company is in the service industry, then you will create service items. If your company sells products, and those products are placed in your inventory prior to a sale, then you will create inventory items. If your company charges sales tax, then you will create sales tax items. The complete list of item types are as follows: Inventory Part: When you purchase a product to be sold later, those products will be classified as inventory parts when you create the item. Inventory parts are not an expense to your company when purchased from the manufacturer. They are initially classified as inventory, which is an asset on your company s balance sheet. The cost of purchasing a product for resale will only be expensed when it is sold to your consumers. For example, if your company purchases $100 worth of Long Stem Red Roses to be held in the inventory until they are sold, then your inventory will increase by $100. When the roses are sold, your inventory will decrease by $100, but your expenses will increase by $100. Non Inventory Part: A non inventory part is an item that a company does not keep track of in inventory. It can be an item that your company purchases, but does not resell such as office supplies or boxes for packaging. It can also be something that you

2 company sells, but doesn t purchase. An example of that would be if your company drop ships merchandise directly to the customer. Service: You will create service items if your company provides a service, such as landscaping or consulting services. Other Charge: You can create an other charge item for other than your normal service or product charges. A good example is an NSF fee when a customer issues an NSF check. You may also use this type of item to charge for shipping and handling. Subtotal: The subtotal will add up the line items immediately preceding it. It s most commonly done just before the sales tax is added. Group: You can create a group of items that will automatically be added and totaled on one line of the invoice. For example, if you are selling a dozen red roses and a dozen pink roses for $15, then you can create a group to include those roses for one price of $15. The red and pink roses must first be created as separate items, then you will create a group item to include the items of your choice. Using this item type when possible will help you create your invoices quickly and efficiently. Discount: This type of item will allow you to deduct a certain amount from the invoice total. A discount can be set up as a percentage, such as 10% off, or it can be set up as a dollar amount. Payment: A payment item type can be used if someone made a partial payment prior to the final purchase. For example, if you are going to provide landscaping services for $10,000 and require a 10% deposit, then your customer will give you a partial payment of $1,000. Upon completion of the services, you will use a payment item type to indicate that the customer has paid $1,000 and the balance of the invoice will be $9,000. Sales Tax Item: This is a very important item type if your company is required to charge sales tax. You will create a sales tax item for the government entity that you must collect sales tax for. For example, if you re business is located in Beverly Hills, then you wil create a sales tax item to collect sales tax on behalf of Los Angeles County and the state of California. Sales Tax Group: You will create individual sales tax items to collect sales tax for state government and another sales tax item to collect for local government. When you make a sale to a customer in which you need to charge state and local sales tax, you can create a sales tax group which will automatically calculate sales tax for state and local government at once. The following lessons in this chapter will show you how to start creating items.

3 Lesson 4-2 How To Create An Inventory Part Item We will create an inventory part item and we will purchase the item to increase the inventory. As discussed in lesson 4-1, an inventory part is an item that your company has purchased from a manufacturer and placed in the inventory to be resold later to a consumer. In this example, we will create such an item. To create an inventory part item, perform the following steps: 1. Click List on the menu bar, then click Item List.

4 2. Click Item at the bottom to bring up the item menu, then click New to create a new item. 3. In the Type field, select Inventory Part for the drop down menu.

5 4. We are going to enter information in the fields highlighted in yellow. 5. We have filled in information in the highlighted fields. Below is a brief explanation of the most important fields. Item Name/Number: You will give the item a name or an item number in this field. The name that we are going to use is Red Roses. Manufacturer s Part Number: The manufacturer has a part number for each item that is sold to your company. That part number should be listed in this field. Cost: Enter the amount that your company paid for the item. Sales Price: This is the amount that the customer will pay for the item.

6 COGS Account: When an item is sold, your company will incur an expense. That expense must be allocated to an account. You must identity that account in the COGS Account field. For this example, we will leave it at the default account of Cost of Goods Sold. Tax Code: You must indicate if this item will be tax upon sale to your company s customer. There are only two options: Tax and Non Tax Income Account: When an item is sold, your company will earn income which will be indicated on the income statement. The income needs to be allocated to an income account. I have chosen the income account called Installation Services. (Installation Services is a QuickBooks default account. You can create a generic income account called Sales if you choose). Asset Account: When you purchase an inventory part, it will be indicated on your company s balance sheet. You can use the default account called Inventory Asset or you can create a new account more specific to your company s business practices. 6. We are going to purchase the item that we just created. Let s create a bill for the item by clicking Vendors on the menu bar, then click Enter Bills

7 7. Select the vendor to purchase the items. 8. Click the items tab, then select the item that your company will be purchasing. For this example, we will choose the red roses.

8 9. In the quantity column, enter the amount of items that your company will be purchasing from the vendor. In this example, we are purchasing 15 items. Click Save and Close at the bottom. Creating the bill indicates that you have received the items and an invoice from the vendor, and you are going to pay the invoice soon. Creating the bill also means that the items are in your inventory and that inventory will be reflected on the balance sheet. Let s check the balance sheet to be certain. 10. Click Reports on the menu bar. The go to Company and Financial > Balance Sheet Standard.

9 11. If you recall, then we created the item, in the Asset Account field, we chose the account named Inventory Asset. That account is listed on the balance sheet and the amount in that account is $30, which is the cost of the items that were purchased from the vendor. Lesson 4-3 How to Create a Service Item We will create a Service item. A service item is easier to create than an inventory item. In this example, we will create a service item for an assembly that will be done by a subcontractor. This means that there will be a cost to your company, and that cost will be increased and passed on to the customer. To create a service item, perform the following steps:

10 1. Click lists on the menu bar, then click Item List 2. Click Item at the bottom, then click New to create a new item. 3. In the Type field, choose Service.

11 4. We will enter information in highlighted fields, then we will choose This service is used in assemblies or is performed by a contractor or partner. 5. Click the box next to the label This service is used in assemblies or is performed by a contractor or partner.

12 6. In the Item Name/Number field, enter the name or number of the item. In this example, the name of the item will be called Assembly Fee. Assembling will be performed by a subcontractor, which means that they will charge your company a specific amount, and that cost will be passed on to the customer after we increase it to make a profit. The cost field is what the subcontractor is charging your company, and the Price field is the amount that your customer will pay to you. The expense account will be Cost of Goods sold. Most states do not charge sales taxes on labor, so in the Tax Code field, select Non-Taxable. When we sell the service item, we have label which type of income it is. We will select Maintenance Services for this example.

13 7. We are going to create an invoice for a customer, and that invoice will include the service item that we just created. Click Create Invoice on the QuickBooks home page. 8. Select a customer.

14 9. Select the service item that was just created. 10. You will see the item included in the invoice. The customer will pay your company $75, but the subcontractor will only charge us $50 which leaves us with a $25 profit for this sale. Lesson 4-4 Create Other Charge Items

15 We will create an Other Charge Item. An Other Charge item is basically a miscellaneous charge that you need to add to a customer s invoice. Some examples are shipping charges, processing fees or NSF (insufficient funds) fees. These types of charges don t fit into a service charge or product item. To create an Other Charge item, perform the following steps: 1. Click Lists on the menu bar, then click Item List.

16 2. Click Item at the bottom, then click New to create a new item. 3. In the Type field, choose Other Charge

17 4. We will enter information in the highlighted fields, and place a check mark in the box next to the label This item is used in assembles and is a reimbursable charge. 5. Place a check mark in the box next to the label This item is used in assembles and is a reimbursable charge. You will see the options expand and we will enter more information in the boxes highlighted in yellow.

18 6. The information has been entered. It is important to select an account in the Expense Account Field and the Income Account Field. The accounts that you choose in those fields will depend on your business practices. 7. Click the Create Invoice icon on QuickBooks homepage.

19 8. Choose a customer 9. Select the item that we just created.

20 10. The item is included in the invoice. The price of the item matched the price that we entered into the Price field when we created the item. Lesson 4-5 Create A Non Inventory Item We will create a non-inventory item. As explained in lesson 4-1, a non inventory item is an item that a company purchases, but does not keep track of. A good example of this type of item is something that is drop shipped to a customer s home, or boxes used for packaging. To create a Non-Inventory Item, perform the following steps:

21 1. Click Lists on the menu bar, then click Item Lists. 2. Click Item at the bottom, then click New to create a new item.

22 3. In the Type field, click Non-Inventory part. 4. Place a check mark in the box labeled This item is used in assemblies or is purchased for a specific customer job.

23 5. Fill in the appropriate fields then click OK on the top right. 6. Click invoice on the QuickBooks homepage.

24 7. Select a customer. 8. Choose the item that we just created.

25 9. The item is now listed on the invoice. Lesson 4-6 Create A Discount Item We will create a discount item. This type of item will come in handy if you need to apply a discount. You can apply a discount item as a percentage or as a dollar amount. To create a discount item, perform the following steps: 1. Click Lists on the menu bar, then click item lists.

26 2. Click item at the bottom, then click New to create a new item. 3. In the Type field, choose Discount from the drop down menu.

27 4. We will enter information in the highlighted fields. 5. You can enter the discount as a dollar amount or as a percentage. We will use a percentage in this example. Be sure to use a percent sign when you enter the discount as a percentage. Also, make sure that the Tax Code field is set to Tax. When that field is set to Tax, then the discount will be applied after the tax has been charged to the other items on the invoice. If you choose Non-Tax, then the discount will be deducted before sales tax has been applied. Most tax collecting agencies want the tax to be paid before a discount, so make sure this field is set to Tax.

28 6. Now we will use the discount item on a sale. Click Create Invoice on the QuickBooks homepage. 7. Select the discount item.

29 8. The discount item has been added. Take note that the discount amount of $2.50 has been subtracted after the tax has been calculated on the amount of $25. Lesson 4-7 Create A Subtotal Item You will learn to create a Subtotal item. The subtotal item s purpose is to create a subtotal for a a group of items within the body of the invoice. This lesson will show you how to create the Subtotal item and we will use the item in an an example when we create the invoice.

30 1. Click Lists on the menu bar, then click Item Lists. 2. Click Item at the bottom, then click New to create a new item. 3. In the Type menu, choose Subtotal in the drop down menu.

31 4. Create a name in the highlighted field. You can add a description, if needed. 5. Click OK when you have finished entering a name for your subtotal.

32 6. We will now see an example of the Subtotal item. Click Create Invoice on the QuickBooks homepage. 7. Choose a customer.

33 8. Choose the Subtotal item that was created. 9. After the subtotal has been added, you will notice that it has totaled the items immediately above it. Lesson 4-8 Create A Group Item

34 We will learn to add multiple items to an invoice simultaneously by creating a Group item. Under normal circumstances, when an invoice is created, items are added individually. This process can be time consuming because individual items must be added to the invoice in a singular fashion. Additionally, adding items to an invoice individually also allows for mistakes to be made. However, a Group item will allow you to add several items at once which allows you to be more efficient when creating invoices. Using this feature will also reduce possible mistakes because the items have already been added to the Group item and are instantly added to the invoice when the group is used. Before you create a Group item, the individual items must be created before being added to a Group item. 1. Click Lists on the menu bar, then click Item List. 2. Click the Item button on the lower left corner of the Item List window then click New, or press CRTL + N on your keyboard. 3. Select Group from the drop-down box. 4. Enter a name or a number in the Group Name / Number field. 5. Add items to the group in the field below the Group Nam field. Please be advised that you must create the individual items first. If you do not know how to create a basic inventory item, refer to lesson After you have added your items, it can be used in an invoice. Type the name of the group in the item code field on an invoice to use the group that you create.