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QBO Primer: Setting Up Products and Services

3/5/2019

 
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The products and services your business sells make it unique. The same thing is true of how these items are set up in your accounting software.  Whether you’re using QuickBooks Online or something else, getting your products and services set up right can impact the quality of the information you can get out of your accounting system. 
 
Here are the types of items you can set up in most systems.
 
Inventory Items

Inventory items are used in retail and wholesale businesses. They are physical items that the system can keep count of for you.  You can purchase or make the items, and the associated cost is usually tracked when a shipping receipt or bill is entered.  They are sold when a sale is made and an invoice or sales receipt is entered. 
Transactions using inventory items impact a lot of accounts on both the balance sheet (cash, accounts payable, accounts receivable, and inventory) as well as the income statement (cost of goods sold, sales, and returns).  The inventory item can be tied to default sales and purchase accounts in most systems. 

Non-Inventory Items

QuickBooks offers a type of item called a non-inventory item. There’s a big difference in that non-inventory items do not have quantities associated with them. They don’t increase or decrease the inventory account. But they can be tied to default sales and purchase accounts like inventory items above. 
Examples of non-inventory items include items purchased for a specific job, such as a contractor purchasing appliances for a custom home, items you sell but do not buy, such as an e-book or other digital product, and items you purchase but do not sell, such as shopping bags. 

Service Items

A service item is a special type of non-inventory item. There are no quantities, which makes sense because services are not physical items. They also are only connected to a sales account and not a purchase account. 
With service items, you could set up service packages or hourly rates. 

Bundles

A bundled item is a group of items that were designed to be sold together. For example, if you sell a gift basket of coffee products, you would bundle the items used to create the basket.   

Assembly Items

An assembly item is a special type of inventory item where the quantity is tracked, but it differs from an inventory item in that it can’t be sold separately because it is a component and not a whole item.  Assembly items are available in larger accounting and inventory apps, such as QuickBooks Enterprise, and are used in conjunction with a Bill of Materials or other build feature.
An example is a set of shelves. The assembly components are the individual shelves and the frame pieces that you may want to keep counts of. An inventory item that contains the shelves, the frames, and other parts is “built” from the assembly items.  The nuts and bolts could be non-inventory items or assembly items, depending on whether you wan to keep count of them or not. 

Sales Tax Item

Sales tax is a very special type of item used on an invoice or sales receipt to calculate sales tax due on the order. In many accounting systems, it’s usually kept in a separate list from the other product and service items. Rates can be entered for each sales tax jurisdiction.

Other Items

Some systems have an “other” category to capture items such as freight, shipping, handling, and other add-ons to the sale. 

Tracking Profitability

Setting up the right type of products and services is critical to matching costs and revenue for accurate insights into gross margin. This section of your accounting system is also the one that’s most different from industry to industry and company to company.

For best results when setting up Products & Services, be sure you get professional help from experts who know both the software and your industry for best results. Contact us to find out how we can assist you!
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact us, your CPA or tax advisor for additional details.
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    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
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      • Newsletters - Monthly Editions >
        • Newsletter - Monthly Edition
      • Newsletters - Quarterly Editions >
        • Newsletter - 2019 Fall/Winter
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    • How To's >
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