When using QuickBooks, one area that often leads to confusion is whether to use Expenses or Items when entering data into the program. These items are closely related, but items may be more appropriate for some types of businesses. Because you have a choice to use an Items or Expenses tab when entering transactions in QuickBooks, many people often use the Expenses tab – but it may not always be the correct choice.
Expenses vs Items
1. An Expense is:
Anything that your company spends money on that keeps it up and running. An Expense is rent, phone bills, website hosting fees, office supplies, accountant fees, trash service, janitorial fees, etc. These things do not generate any income for your business, but they do keep your business running.
When you enter the costs associated with these things you enter them under the Expenses tab.
2. An Item is:
Anything that your company buys, sells, or resells in the course of your business. An Item could be products, goods, or services that you purchase from others, such as an Estimate, an Invoice, a Sales Order, or even a Purchase Order. Those things are your Items, they live in the QuickBooks Items List, and they help you to complete these types of forms.
When you add something to the Items List in QuickBooks you can set it up so that it can capture not only the money you pay to purchase it but the money that you receive when you sell it. This is especially important if you want or need to do any sort of Job Costing. It is only natural that when you pay for these things you enter their costs under the Items tab.
2.1. Job Costing: One of the key differences between Expenses and Items in QuickBooks is how they can be used for job costing. If you are a contractor, it may help your record-keeping to be able to engage in job costing and to keep records for each individual job.
When you enter an expense for a job into Items, it allows you to job cost that expense. When the cost is entered into Expenses, it cannot be job cost.
2.2. Items Linked to Accounts:
When you choose to use Items in QuickBooks, the items you enter will be linked to specific accounts. These accounts are visible by looking at the Chart of Accounts in your QuickBooks interface. If you have multiple items that need to be attached to a single job, it is possible to do so with QuickBooks. Simply link the item to the appropriate account when you enter it. Then all of the items for that job will be visible when you run a report.
Considerations
When using QuickBooks, you have the option of entering business costs as Expenses or as Items. When you click on the Items menu, you have the ability to enter more information. If you choose to enter an item in Expenses, you simply enter the cost of the item. At first glance, it may appear to be two different ways to complete the same task. However, when you enter costs into Expenses, it gives you limited capabilities in regard to using that information later.
If you run a construction business or some other type of contracting business, using Items is most likely the most convenient option to use. If you run a retail business or some other type of business in which you do not have to assign individual components to individual jobs, then using Expenses may be the more appropriate option to use. This way, you simply keep track of the expenses you have for your business as a whole.
Conclusion
So, the next time you sit down to enter a bunch of bills, write checks, or enter credit card charges – ask yourself this question:
Is the money I’m spending on this associated with a job, a sale, a client, or a customer?
If the answer is Yes – use the Items tab.
If the answer is No – use the Expenses tab.
Are you ready to get help, or are you still not sure if you need help to run your construction business? Contact Construction Cost Accounting to have a free 15-minute consultation!
