Finding and Fixing Item List Errors
Do you want to quickly fix some of the most common errors in QuickBooks? Reviewing and correcting items in QuickBooks can be an efficient way to repair a company’s data file accounting errors. Often the reason or misstatement on a company’s financials can be traced to incorrect setup of items. Some indicators of this might be understated revenue, negative costs, or just an overall lack of confidence in the financials. This is because QuickBooks items are “mapped” to the chart of accounts, if an item is improperly assigned to the wrong type of an account, this could create errors in accurate financial reporting.
To help you in those instances where incorrectly set-up items might not be so apparent, the following sections offer a few methods for reviewing the item list.
Reviewing the Item List on the Computer Screen
Adding and removing columns you view in the Item List can help you notice any setup errors that exist.
Now you can conveniently review the list on the computer screen for those items that do not have a cost of goods sold or expense account assigned, or that might have the wrong account assigned. Not having an expense account assigned becomes problematic when the item is both purchased and sold; both types of transactions will report only to the single account selected as the Income Account.
See the “Correcting One-Sided Items” section of this chapter for a more detailed discussion of how to properly fix this issue. Refer back to Figure 4.3 for details on creating a two-sided item in QuickBooks.
Item Listing Report
Another method to review the item list setup is the Item Listing report (by choosing Reports, List, Item Listing from the menu bar). Click Customize Report from the top left of the displayed report. In the dialog box that displays, click the Display tab to select the columns to view. Useful columns include Item, Description, Type, Account, Asset Account (for inventory items only), COGS Account, and Sales Tax Code, as shown in Figure 4.26. Whenever the item is used on a purchase or sales transaction (such as an invoice, a sales receipt, a bill, a check, and so on), these columns show to which accounts QuickBooks records the transaction on the chart of accounts.
Figure 4.26. Modify the item listing report to provide just the details you need.
What exactly are you looking for on the list item report? First, look for items that you use on both purchase and sales transactions, but that are missing the COGS Account, as shown in Figure 4.27. Alternatively, you might also look for items with the incorrect account assigned. If you collect sales tax, be sure the correct sales tax code is selected.
Figure 4.27. Review the Item Listing report for item setup errors or missing information.
For a more detailed discussion of sales tax in QuickBooks, see “Setting Up Sales Tax,” p. 314.
Profit & Loss Standard Report
If you suspect errors with your financials, drilling down (double-clicking with your cursor) on the Total Income, Cost of Goods Sold, or Expense totals from a Profit & Loss Standard report might provide clues to the mistakes. To generate this report for your data, follow these steps:
- From the menu bar select, Reports, Company & Financial, Profit & Loss Standard.
- On the Profit & Loss Standard report, double-click the Total Income subtotal, as shown in Figure 4.28. A Transaction Detail by Account report displays, showing each line of detail that makes up the amount you viewed on the original Profit & Loss Standard report.
Figure 4.28. Drill down to review the details of your business’s Total Income dollars.
- On the Transaction Detail by Account report, click Customize Report. In the dialog box that displays, click the Filters tab. In the Choose Filter pane, scroll down to select Transaction Type.
- In the Transaction Type drop-down list, select Multiple Transaction Types, as shown in Figure 4.29. The Select Transaction Type dialog box displays. Click to place a check next to each transaction type that normally would not be reported to an income account, such as a check, bill, credit card, and so on, and then click OK.
Figure 4.29. Filter the report to include transaction types that should not be reporting to income accounts.
The resulting report now shows all purchase type transactions (or whatever transaction types you selected) that were recorded to income accounts. In the example shown in Figure 4.30, a vendor bill transaction type displays in the totals for income. This is because on the vendor bill an item was used that had only an income account assigned. After you determine you have these types of errors in posting, you should review your item list for any one-sided items. This topic is discussed in the next section.
Figure 4.30. The Transaction Detail by Account report shows a purchase type (vendor bill) transaction reporting to an income account in error.
As with any data correction in QuickBooks, you should make a backup of the data before attempting these methods. The preferred backup method is a QuickBooks backup (a file with the extension of .QBB). You can create a data backup by selecting File, Create Backup from the menu bar. If the result after fixing items is not what you expected, you can easily restore the backup file.
This section showed some effective ways to determine whether your items were incorrectly set up. In the next section, you learn the methods of fixing these item setup errors in QuickBooks.
If you are an accounting professional, you will want to review your client’s item setup and possible errors using the Client Data Review features and tools available only with QuickBooks Accountant 2013. More information can be found in Appendix A, “Client Data Review.”
Correcting One-Sided Items
A one-sided item is an item that has only one account assigned. See Figure 4.31, which shows the Framing item setup. Notice the only account assigned to this item is Income:Labor. When this item is used on a customer invoice, it increases the Income:Labor amount. However, if the same item is used on a check or bill, the amount of the expense records directly to the Income:Labor income account as a negative number. This would cause both income and cost of goods sold to be understated.
Figure 4.31. Items with only one account assigned can misstate financials if used on both purchase and sales transactions.
You should not have one-sided items if you plan to use the same item on both purchase transactions and sales transactions.
You might have several items on your list that can qualify to be one sided because they are used only on sales transactions and never on purchase transactions, or always on purchase transactions and never on sales transactions. What can become problematic is that at some time, a user may mistakenly use the item on the other transaction type.
Inventory items will default as two sided. For the other item types, I recommend you create them all as two-sided items (see Figure 4.32). You do so by selecting the checkbox labeled This Service Is Used in Assemblies or... (the rest of the label depends on what item type is selected) in the New or Edit Item dialog box.
Figure 4.32. The corrected one-sided item now has both an expense and income account assigned.
The results are new Purchase Information and Sales Information panes. Now, the “Account” has become an “Income Account” and you have a new Expense Account field to assign your proper expense account. This way, if you use the item on both a vendor bill or check and a customer sales transaction, your financials show the transaction in the proper account.
The decision made at this time to change the account assignment is critical to your financials. Clicking Yes to updating existing transactions causes all previous transactions to now report to the new account assigned. If you are attempting to fix historical transactions, this can be a timesaving feature because you do not have to change each individual transaction manually.
Click No if you do not want to update prior period transactions. This option might be recommended if you have already prepared your tax data with QuickBooks financial information. The change then takes effect only for future transactions.
If you ignore the message, in this example QuickBooks posts the expense to the revenue account selected in the New or Edit Item dialog box. The effect of this is to understate revenue (an expense is a negative amount in the revenue account) and to understate your costs (because no cost was recorded to an expense account). Both of these messages distort your financial details, so be sure you don’t disregard this important message.
Figure 4.34. To be notified of transaction errors previously disregarded, select the Bring Back All One Time Messages checkbox.
Making an Item Inactive
If you have found errors in your item list, a safe method for avoiding future mistakes by using the incorrect items is to make them inactive. An inactive item still displays in reports, but is not included in any drop-down lists on sales or purchase transactions.
To mark an item as inactive:
- From the menu bar, select Lists, Item List.
- Select the item you want to make inactive by clicking it once.
- Right-click the selected item.
- Select Make Item Inactive.
- If a warning message displays (such as the item being part of a group), click Yes to make the item inactive or click No to cancel your change.
Making an item inactive does not have any impact on the company’s financials. If you want to correct your financials, you need to choose one of two options:
- Edit the account assignment on each item. This gives you the option to fix all previous transactions that used this item retroactively. (Use this cautiously because it changes prior-period financials.) The effect of changing an account assignment on an item is the same as the one discussed in the section “Correcting One-Sided Items” in this chapter.
- Create a General Journal Entry transaction to reassign the amounts from one account to another. This method is typically completed by your accountant.
Before making changes, make a backup of your data and always discuss the method you choose with your accountant.
Except for inventory items, there are generally no ramifications for marking a list item inactive. Only inventory items with a zero quantity on hand should be made inactive. See Chapter 6, “Managing Inventory,” for more details on handling inventory errors.
If you have duplicated items, one easy method for fixing the problem is to merge items of the same type. When merging two items, you first need to decide which item is going to be merged into the other item. The item merged will no longer exist on your item list.
To merge two items, follow these steps:
- From the menu bar, select Lists, Item List.
- Review the list for duplicate items; note the name of the item you want to remain.
- Double-click the item you want to merge into another item. The Edit Item dialog box displays.
- Type in the Item Name/Number field the name exactly as you noted it in step 2. You can also use the copy and paste command to avoid typing lengthy names or long numbers.
- Click OK to save your change. QuickBooks provides a warning message that you are merging items (see Figure 4.36).
Figure 4.36. A warning displays when you merge two items.
Carefully consider the consequences of merging before you do it (and be sure you have a backup of your QuickBooks file). All the historical transactions merge into the remaining list item.
Creating Items as Subitems
Creating an item as a subitem of another item is one way to easily organize reports for a group of similar items. Your accounting data is not affected by having or not having items as subitems.
To make an item a subitem of another item, follow these steps:
- From the menu bar, select Lists, Item List.
- Double-click the item you want to assign as a subitem. The Edit Item dialog box opens.
- Select Subitem Of checkbox, as shown in Figure 4.37.
Figure 4.37. The Sitework Sub service item is being made a subitem of Subs (short for Subcontracted).
- From the drop-down list, select the item you want to relate this subitem to.
You can create a subitem only within the same item type. For example, service items cannot be subitems of inventory items.
You can also rearrange the list by assigning a subitem to another item by using your mouse pointer on the Item List to move the item up or down and to the right or left. This functionality is the same as the example discussed in the section “Assigning or Removing a Subaccount Relationship” in this chapter.
You have now completed the important steps in getting your file ready to work with. In the next few chapters, you will learn about inventory, vendor, customer activities, and much more!