Reviewing and Correcting Item List Errors in QuickBooks 2008
- Understanding the Differences Between the Chart of Accounts, Items, Classes, and Customer Types
- Using Item Types in QuickBooks
- Finding Item Errors in QuickBooks
- Fixing Item Errors in QuickBooks
- Creating Items as Subitems
- Item List Review Checklist
Understanding the Differences Between the Chart of Accounts, Items, Classes, and Customer Types
QuickBooks offers several methods for separating business results into meaningful segments. You have the Chart of Accounts list for organizing your transactions, the Items list for tracking the profitability of individual services and products you sell, classes for tracking different corporate profit centers, and the ability to view your profitability by user-defined customer types.
The QuickBooks accounting structure is generally easy to set up and define. What becomes problematic for some is how to efficiently use each of the available list types when you want to segment the business reporting activity in QuickBooks.
Before reviewing and correcting item list errors, you need to understand the differences between items and the other lists available in QuickBooks.
Chart of Accounts
The chart of accounts list, in particular, the Profit & Loss accounts, should offer just enough detail for you to make financial decisions for your overall business, but not so much detail that you have too much information to deal with.
Keeping your Profit & Loss chart of accounts minimized allows you to easily analyze business finances. For example, a contractor might employ 30 or more different types of specialty trades when building a house, such as site work, concrete, plumbing, and so on. To create a Cost of Goods Sold account for each type of trade would be too much detail when reviewing financial reports for the overall business.
A better approach would be to create summary Cost of Goods Sold accounts that, for the contractor example, might be Cost of Goods Sold - Labor, Cost of Goods Sold - Material, Cost of Goods Sold - Equipment, and so on. Other industries that track many services or products would also benefit from including only summary accounts on the Profit & Loss statement.
Items are what you sell or buy and are used on all customer forms and optionally on purchase forms. Items provide a quick means for data entry. But a much more important role for items is to handle the behind-the-scenes accounting while tracking item-specific costs and revenue detail. Using the contractor example given previously, you could create an item for Site Work Labor, Concrete Labor, and Plumbing Labor and assign each item to your single Cost of Goods Sold – Labor chart of accounts. Using items allows you to capture cost detail by labor type rather than creating a Chart of Account for each type. Then, when you view your Profit & Loss statement you can easily see what your total Cost of Goods Sold is for all labor types.
Another method for segmenting your QuickBooks financial information is by using classes. The use of classes is a preference setting and must first be enabled by logging in to the data file as the Admin user:
- Click Edit, Preferences.
- Select the Accounting preference on the left.
- Click the Company Preferences tab.
- Select the Use Class Tracking option, as shown in Figure 3.1.
Figure 3.1 Enable the preference for class tracking.
Classes are typically used when a company has multiple revenue-generating business types or multiple profit centers. These class list items are then assigned to each transaction as in Figure 3.2. Examples of classes might be a construction company that offers either new construction or remodel services, or a restaurant with multiple locations. In both examples, using classes that are assigned to each transaction line allows you to report profit and loss by class.
Figure 3.2 An example of a check with a class list item assigned on the transaction line.
You can use customer types to categorize your customers in ways that are meaningful to your business. A retailer might use classes to track store locations; a medical office might track types of services; a service company might track what marketing event brought in the customer. You can filter certain reports by these customer types, giving you critical information for making business management decisions.
To create or assign a customer type:
- Click the Customer Center icon from the Home page.
- Select a customer by double-clicking on the name.
- Click the Additional Info tab and select a type from the drop-down menu in Categorizing and Defaults, as shown in Figure 3.3.
Figure 3.3 Assigning a customer type in the Edit Customer dialog.
Many of the customer reports can be filtered for customer type, making it another useful list for segmenting your data.