Is your Item setting skewing your QuickBooks reports?
Troubleshooting item problems in QuickBooks can be a challenge because setup issues (i.e. using a single-sided item) don't stand out on the income statement. Often the only indicator that there is a problem is that the income is either grossly over- or under-stated.
A single-sided item has only one box to choose an account. You can tell which item is single-sided because the "This service is used in assemblies or is performed by a subcontractor or partner" box is not checked. When the box is not checked (i.e. a single-sided item), QuickBooks uses the account selected for all transactions, whether income or purchase.
A double-sided item is one that is set up with both a Cost of Goods Sold (COGS)/Expense account AND an income account. When a double-sided item is used, QuickBooks is smart enough to use the COGS/Expense account on a purchase transaction, and an income account on a sales transaction.
Reports are skewed when a single-sided item is used because all transactions go to the same account. All the sales transactions may hit an income account, but all the purchase transactions hit the same account, so reported income is really low. Alternately, all the purchase transactions will hit an expense account, but the sales transactions will too, often making the expense account negative.
QuickBooks makes it easy to track down items that are not set up properly. Follow these steps to make sure that your item setup is not skewing your reports.
- From the home screen, click Items and Services. This brings up your item list.
- Right-click anywhere on the screen and click "Customize columns."
- Add the COGS account and move it up under the Account column.
- Any blank in the COGS account column means that the item was set up as a single-sided item (the sub-contractor box not checked) and is a likely culprit. You can also see each item's assigned accounts and quickly note which ones are not the same (i.e. the wrong income account).
- Double-click into the items that are not set up properly, check the "This service is used in assemblies..." box, and then add the correct COGS or expense account. Insure that an income account is used on the Income Account side.
- When you click OK, QuickBooks will ask you if you want to update all transactions. If you say yes, you will affect all transactions that used this item, so be very careful. Say no if you do not want to affect prior periods. You can't split the transactions and affect current year only.
- To affect current year only, you'll have to create a new item with the correct COGS and Income account, change current transactions to use the new item, and inactivate the old one. Add the words DO NOT USE to the old item so it is clearly marked.
Regularly scan the item list, especially if there is more than one person entering items into your QuickBooks file, to make sure that all items are being set up double-sided.
About the author
Anne Coles is an Advanced Certified QuickBooks ProAdvisor, an Enterprise Certified QuickBooks ProAdvisor, and is the president of The Wren Group, Inc.