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Caesar's Brook Babblings

QuickBooks News You Can Use

February 2011 - Vol 4, Issue 2

In This Issue
Setting up Items
FREE Online Backup
Online Banking Transactions
Caesar's Brook

Greetings! 

Welcome to the February issue of Caesar's Brook Babblings!


Wow, have I been snowed under!  Both literally, with all the white stuff that just keeps falling from the sky, and figuratively, with all the calls I get this time of year looking for help getting QuickBooks files cleaned up. Snowed under cartoonWith that in mind, our feature article this month is on setting up items correctly. Setting up items incorrectly is one of the most common mistakes that QuickBooks users make and one of my readers requested an article on this topic, so here it is.

 

We also have a QuickTip on reconciling online banking transactions and an offer for FREE online backup of accounting data along with some really scary statistics on small businesses and backups.

 

Cat with CandyHappy Valentine's Day!  Have a piece of chocolate -- it's good for your heart and your soul.
FeatureFeature Article
 

What to do with items?Setting Up Items the Right Way: Service and Non-Inventory Items

One of most common problems in QuickBooks data files is the result of incorrectly set up items. Items handle the behind the scenes accounting in QuickBooks, automatically posting transactions to your financial statements. If they are not set up correctly, your financial statements won't be correct. So in this month's article, we talk about how to correctly set up the two most common item types, Service and Non-Inventory Items. 

Cash RegisterBefore we dig in, a quick refresher.  QuickBooks items are things that you sell; all sales transactions (estimates, sales orders, invoices, sales receipts) require at least one item. Purchase transactions (checks, credit card charges, vendor bills) have two tabs on the bottom half of the transaction screen and give you the option of using either an item or an expense account.

The general rule of thumb in QuickBooks is:  If you buy something for resale to a customer, use an item on your purchase transaction; if you buy something for your own internal use, use an expense account on your purchase transaction.

You will find the Items list on the Lists pull-down menu or in the Company section of your Home Page.  The item list can be sorted by clicking on the column headers and you can customize the columns that you see from either the menu that pops up when you right-click or from the menu the opens when you click on the Item button at the bottom of the screen.

When you open the New Item dialogue box, it looks like this:

  New item example 1

The first step is to select an item type.  Service items are intended to be used for services that you sell and/or subcontract with someone to provide on your behalf.  Non-Inventory parts are intended to be used for goods that you buy for resale but for which you don't have a need to track the on-hand quantities. 

Here's a secret: Service Items and Non-inventory parts behave exactly the same way in QuickBooks.  The only difference between them is that they are grouped and sorted separately on sales reports.   

Next, enter your item name.  Short and unique item names are generally the best bet.  Sales forms can be customized to show just the description, and using short, unique names will reduce the number of keystrokes required to enter items.  Use sub-items to group similar items together. See Organizing QuickBooks Items in our September 2010 issue for more information on this.

Select your Unit of Measure if you are using one. 

Now we come to the heart of the problem.  It's that little check box that says "This service is used in assemblies or performed by a sub-contractor or partner."  If you are setting up a Non-Inventory part, it says "This item is used in assemblies or is purchased for a specific customer:job."  Most people find this language confusing and they ignore the checkbox.  However, here's what happens when you check it.

 New item example 2

The item changes from what I refer to as a single-sided item to a double-sided item.  The problem with single-side items is that you can only assign one account from your chart of accounts.   If you assign an income account, your sales transactions will be correct, but if you use this same item on purchase transactions, they will not be correct.  There is a little warning that pops up if you use an item associated with an income account on a purchase transaction, but most people simply turn it off.

If you purchase anything at all for resale, my very strong recommendation is that you make every item a double-sided item.  If you have items that are used for job costing and you do not want them used on sales transactions, put "DO NOT SELL" in the Sales description.

On the Purchase side, the Cost that you fill in here will appear on Purchase Orders, Vendor Bills, Credit Card Charges, and Checks as well as in the cost field on estimates.  You can leave it blank in the set up or type over it on the forms.  Select an Expense (or Cost of Goods Sold) Account.  If you create purchase orders from Estimates or Sales Orders, you may want to add a preferred vendor.

On the Sales side, the Price that you fill in here will appear on Estimates, Invoices, Sales Orders, etc.  Again, you can leave it blank in the set up or type over it on the form.   Select a tax code if appropriate and an Income account.

You can troubleshoot your own item list by customizing the columns to show the COGS Account. Verify that your items are double-sided and have an Income Account in the Account column and a Cost of Goods Sold or Expense account in the COGS Account column.  You can also find problem transactions by running a P&L and double-clicking on the Total Income.  If you see transactions from Bills, Checks, or Credit Card Charges, you should investigate to see if an item was used improperly.

If you do find a problem and need to change the account associated with an item, you will get a prompt asking if you would like to change the account associated with previous transactions as well.  Be very, very careful.  If you answer yes to this question, you may impact closed accounting periods. In most instances, it is better to manually correct the individual transactions.

FREE Online Backup Service for Accounting Data

 

Hard disk crashI have recently seen some truly horrifying statistics on small business and backups. 
  • A hard drive crashes every 15 seconds
  • 40% of small and medium businesses don't backup their data at all
  • 60% of all backups are not fully recoverable
  • It takes about a day and costs about $1000 to retype just one megabyte of accounting data if all the records are readily available
  • 60% of businesses that suffer a major data loss close within 6 months; 72% within 24 months

I strongly recommend using a remote backup solution for your accounting data.  There are lots of alternatives out there including QuickBooks Online Backup, Digital Iron Mountain, Carbonite, and Mozy. 

Gillware Data ServicesHowever, here is a FREE option.  According to their literature, Gillware Remote Backup - Accounting Edition is a free service that will securely and automatically backup as much as 2 GB of your QuickBooks and Peachtree data files forever.  Click on Accounting Professionals at http://backup.gillware.com for more information. 

QuickTip: Reconciling Online Banking Transactions

 

Fist holding Lightning BoltWhen you accept downloaded transactions from your bank or credit card company into your register, QuickBooks puts a little lightning bolt character like this ~ in the cleared column of your register.  When you reconcile an account with downloaded transactions, QuickBooks adds a Matched button to the bottom of the screen next to the Mark All, Unmark All and Go To buttons. If you click on the Matched button, it will prompt you for your statement end date and then automatically check off all transactions prior to that date with a ~ in the register.

 

I love it when I discover something new in QuickBooks and this is a great example.  I've been downloading transactions into QuickBooks for myself and my clients for years, but until someone pointed it out to me recently I never noticed that magic Matched button!

banner 2I hope you found these babblings useful.  Your feedback is important to me.  Please drop me a line and let me know what you think.

Sincerely,

Susan Dugdale
Caesar's Brook Business Solutions, LLC
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