The Products and Services List contains all the items and/or services your client company sells. When you first set up a QuickBooks Online file, it’s very important to develop an organized, comprehensive set of items, for two reasons:
First, these are the entries that will show up on the company Invoices, Sales Receipts, and Purchase Orders.
Second, when you run reports on sales, you will be able to determine which of the Products and Services are the most popular, and which have the best profit margin (which isn’t necessarily the same thing!).
COA or Products & Services
Some bookkeepers get confused as to whether to include detail in the Chart of Accounts as Income categories, or whether to create the details in the Products and Services list.
Think of a clothing store. Their Chart of Accounts would have Income categories for Clothing, Shoes, and Accessories, because you would want to see these distinct revenue streams broken out on a P&L report.
The Products and Services list would have Men’s, Women’s, and Children’s departments (categories); further Subcategories would be created for Shirts, Pants, Sweaters, Socks, etc. You could even include nested subcategories every item in the store if the owner wanted to track exactly what sold to each Customer!
(Note: in a real clothing store file, this level of detail might be in the shop’s POS system, not necessarily in their QuickBooks file, but it’s a good illustrative analogy).
Setting Up Products & Services
To set up the Item List, select Gear > Products and Services or Sales > Products and Services.
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Depending on which industry was selected when the QuickBooks Online file was first started, you may see a list of items common to the profession.
Using the same techniques described above in previous articles about the Chart of Accounts section, this list can be customized by removing products and services your client doesn’t offer, adding ones they do offer, and arranging them into categories.
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You can change what columns show on this screen by clicking the little Gear at the top right of the table.
Product & Service Types in QBO
There are four types of Products and Services in QBO: Inventory items, Non-inventory items, Service Items, and Bundles.
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Inventory items are products that the business sells, tracking the quantities on hand and the cost to purchase the items. These are only available in the Plus and Advanced versions of QBO.
Non-Inventory items are physical products that will sell, but don’t get tracked as to how many are sitting on the shelf.
Services are non-tangible services offered to clients.
Bundles aren’t actually separate products. A Bundle is a group of products that always sell together. Bundles make it easy to enter multiple products on a Sales form in one step. Inventory products in a Bundle will reduce Inventory Assets as they’re sold.
Creating a Service Item
Select Gear > Products and Services > New. The Product/Service Information window opens. Click Service.
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If you have a code you use to track the item, enter it in the SKU field.
If you have a picture associated with the service, you can upload it. This will be shown in the Products and Services list.
The Category allows you to group items together, similar to the Sub-accounts we saw in the Chart of Accounts in a previous article..
Check I sell this to my Customers.
Tab down to the Description field and enter what you want for Customers to see on the Invoices and Sales Receipts. Type the most common text you would enter, so that you don’t need to add it every time. If it’s not always the same, or you like to include more detail, you can change it on each transaction.
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In the Rate field enter the price. If you don’t have a consistent price, you can also leave this blank to type it every time.
Assign an Income Account to track which of the company’s general offerings this falls under on the P&L report.
Select Is Taxable if you will charge Sales Tax for this item.
If the company will hire a Subcontractor to perform this service on their behalf, you can implement job costing!
Click I purchase this product/service from a vendor (if it’s just the company providing the service, leave this unchecked).
In the Cost, enter how much the Subcontractor is payed.
In the Expense account, assign this Service to the Cost of Goods: Labor account.
Creating a Non-Inventory Product Item
The next Item will be a Non-Inventory Product, which is a tangible product you sell, but that you don’t track quantities on hand.
Select: Gear > Products and Services > New. Choose Non-inventory item.
The Product/Service Information window opens.
Again, enter the Sales Information that appears on Customer receipts, with the Income account that tracks the money received.
In addition, we can now add Purchasing Information by checking the I purchase this product/service from a Vendor box. The description will show on Purchase Orders, Bills, Checks, and Credit Card Expenses.
Enter the cost the company pays for the products, and the Expense Account: Cost of Goods – Supplies and Materials.
Conclusion
I hope you’ve enjoyed learning how to organize the company’s Products and Services: Inventory items, Non-inventory items, Service Items, and Bundles. Paying attention to these details makes a world of difference when guiding clients and customers.
Look for my next article covering more on Inventory product items, entering quantities and how inventory is calculated along with Bundles!
If you would like a deeper dive into Products & Services then please consider taking my next QuickBooks Online® Fundamentals Class. Or view my QBO Video Training Library.