QuickBooks Tip – Job Costing Starts With A Simple Item
For many contractors job costing is a key part of the success of their business – how else will they know if they are actually making a profit on the jobs they are bidding on.
Job costing in QuickBooks starts with the Item List. When you tell this to most contractors they respond with “Items — I don’t sell ITEMS — what does Items have to do with construction?????
This is a common feeling shared by many who use QuickBooks – not just contractors.
What is an “Item”?
By way of explanation, QuickBooks is a generic software program which can be used in any industry or business type; therefore, many of the terms in QuickBooks are generic and often confusing when trying to make it work in a specific industry. For example:
- For a shoe store, Items equals various types of footwear; sandals, work boots, dress boots, loafers, etc.
- For a contractors, Items equals various cost codes or divisions; Division 01 – General Requirements, Division 03-Concrete, 03.20.00 Concrete Reinforcing, etc.
- For a bakery, Items could equal different types of pastries, cakes, donuts, or pies.
The bottom line is this – your QuickBooks Item list should contain all the goods and/or services that you as a business “sell to OR charge your customer for.”
Creating an Item in QuickBooks
The second area of confusion for many QuickBooks users is the actual creating of an Item or Cost Code in the Item List.
When you access the Lists menu -> choose Item List -> click the Item button -> and select New – QuickBooks presents you with a very basic New Item window where you can select the Item Type, give it a Name/Number, make it a sub-item of another item, give it a description, a rate, assign a Tax Code to the Item and associate it with an Account (usually an Income Account).
Below is a screen shot of a “basic” item setup showing the Income or Revenue side of the item:
The “secret” to making this item work for job costing purposes is that VERY misleading checkbox statement – “This service is used in assemblies or is performed by a subcontractor or partner”.
Checking this option allows you to turn this item a powerful job costing tool.
When you check the option of “This service is used in assemblies or is performed by a subcontractor or partner”- information about the purchase or cost side of the item is now displayed.
Your Item window now displays both Purchase and Sales information – this procedure is commonly referred to as making an Item “double-sided”. It’s important to note that on the Purchase Information side of the transaction the “Expense Account” that you select can be EITHER an actual Expense Account OR a Cost of Goods Sold Account.
Making your Items Work for you
Once you have made your Item “double-sided” you then have to take a careful look at how you enter checks, bills from subcontractors, employee timesheets, etc.
When entering a bill, use the Items tab:
When you write a direct check to a vendor, use the Items tab:
When you enter an Employee’s timesheet, select the Item in the Service Item column:
All of these actions record your costs that are associated with this Item or Cost Code – and Job Costing is born.
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