inventory

QuickBooks Online Products & Services – 6 Min Read With Pics

January 7, 2021November 4, 2019 by KCB

Products and services can be easily added and maintained in QuickBooks Online.

Products and services in QBO are the items you buy and sell to conduct business. Keeping this list of items well maintained will help ensure that your sales and purchase forms have the information they need. It will also contribute to more useful reporting for your small business.

What are products and services in QuickBooks Online?

Products and services are the items that appear on sales and purchase forms. If you plan on using these forms, then you should take the time to enter all your products and services into QBO.

Each item will be linked to an account in your Chart of Accounts. Every time a product or service transaction takes place, an entry is made.

Whether you sell products, services, or both depends on the industry you’re in and the nature of your business.

quickbooks online types of items — Credit: qbo.intuit.com

These are products that you purchase and/or sell. Inventory quantities are tracked. In order to manage inventory, you must have a QBO Plus subscription.

For example, if you own a boutique clothing store, the clothes you sell would be inventory.

Non-inventory

These are items that you buy and sell but don’t want to keep track of the quantity on hand.

Hand soap for an auto mechanic is an example of a non-inventory item.

Service

This is something that you sell which is intangible.

Delivery of your product is an example.

Bundle

A grouping of products and/or services that you sell together.

A restaurant that offers a meal (main, side, and drink) is an example of a bundle.

Products and services settings

If you’ll remember, Products and Services settings are accessed by clicking the gear icon in the upper-right. Then Accounts and Settings (below Your Company).

Products and services settings are a sub-section of Sales settings. Check the box next to the features you want to utilize and click “Save” when you are finished.

Show Product/Service column on sales forms

This option must be turned on in order for the product/service column to appear on sales forms. If it is off, your customers won’t see details about the products and services involved in the transaction.

Show SKU column

SKUs are used to track inventory. Turning on this feature will add a SKU/barcode column to sales forms. If you have a considerable amount of inventory to track, you should check the box to turn this on.

Turn on price rules

Read this post to learn more about price rules. Price rules allow you to give discounts on certain products and to certain customers.

Track quantity and price/rate

Turn this on too if you track inventory. It will add rate and quantity fields to estimates, invoices, and sales receipts.

Track inventory quantity on hand

Another feature that should be turned on if you plan to track inventory. Once you do, QBO will keep track to stock levels for products.

How to add products and services to QuickBooks Online

qbo enter new inventory item — Credit: qbo.intuit.com

Every product or service you add will start with clicking on the gear icon in the upper-right part of the screen. From here, you will select “Products and Services” underneath Lists.

Next, select click on the green New button.

Choose whether you want to add an Inventory item, Non-inventory item, Service, or Bundle.

There are several fields to complete here. The more detailed information you can provide, the better your reporting will be in the future.

Keep in mind that the available fields will be slightly different depending on the type of item you’re adding.

Name and SKU

Name is a description of the product or service. Make it detailed enough, but be aware of the space it will take up on forms and reports.

SKU is a unique combination of letters and numbers used to identify a product or service. You can look at it as shorthand for a given product or service.

Initial quantity on hand (Inventory)

Enter the number of units you had in stock on the As of date (below). If your As of date is today, then enter your QOH right now.

As of date (Inventory)

This is when you will begin tracking inventory levels. The As of date can be any date in the past. Your current inventory level will depend on the Initial quantity on hand (above) and the inventory transactions that have taken place since the As of date.

Reorder point (Inventory)

If you would like to be alerted if the quantity on hand drops below a specific level – enter that level here.

Inventory asset account (Inventory)

This is the account where the value of your inventory on hand will be recorded for the balance sheet. By default “Inventory Asset” is selected. If you would like to use a different account, select “+ Add new.”

Description

If you are going to offer this product/service for sale to customers, make sure the checkbox is checked.

Also, write a description for the product or service which will show up on customers’ sales forms. This can be the same as the item’s Name or different.

Sales price/rate

This is the standard price you will charge for this product or service. Don’t worry if you want to charge different customers different rates. You can specify that later, in price rules.

Income account

Here, select the appropriate account to record sales of the product/service to.

Sales tax category (Inventory)

If sales tax has not been set up in QBO, then you might not see this field. Best to have sales tax set up correctly so that QBO can keep track of it accurately.

The Sales tax category you choose will determine the amount owed depending on what the item is and where you sell it.

Two options will be available by default ” Taxable – standard rate” and “Nontaxable.” You’ll also have the option to “Choose a special category” if this inventory item is of a specific type.

If you “Choose a special category” you’ll be taken to a list of item types and sub-types. Choose the appropriate item type and click “Done.”

qbo new inventory choose special category sales tax type — Credit: qbo.intuit.com

Purchasing information

qbo enter new inventory item show more — Credit: qbo.intuit.com

If this is a product or service that you will be purchasing from a vendor, check this box.

Doing so will cause some other options to appear.

Enter the description for this item you’d like to see on purchase forms.

Cost

This is the standard (typical) cost for this item.

Expense account

Like the Income account, this is where purchases of this item will be recorded to.

Preferred Vendor

Choosing a Preferred Vendor for purchased items will speed up purchase order and bill creation.

Select “Add new” if your Preferred Vendor for this item isn’t set up yet. Then, all you’ll need to do is enter a Name for the vendor to make them preferred.

Click Save and close when you’re done.

You’ll then be taken to the Products and Services screen where you will see your newly-created item.

Save time by making duplicates of similar products and services

quickbooks online make product or service inactive or duplicate — Credit: qbo.intuit.com

If you’re entering a product/service that is very similar to an existing one – save time by making a copy.

From the Products and Services screen, select the similar product/service and click the down arrow (▼) by the word “Edit” in the Action column. Select “Duplicate.”

The Product/Service Information window will pop up with fields already populated. Make the needed changes and then click “Save and close.”

Importing lists of products and services into QuickBooks Online

qbo import sample file products and services — Click to enlarge
Credit: qbo.intuit.com

If you have a lot of new products and services to set up, you might consider importing them into QuickBooks Online.

You will need to have the items (with relevant information ) in a spreadsheet. By downloading the sample file, you can see the order of the columns and the naming conventions. To avoid error, it’s advised to simply fill in your item information into the sample file. Once you’re done, save the file in a location where you can find it.

The columns included in the sample file will depend on the options you choose when setting up the company (in Account and Settings).

When you’re ready to upload, go to Sales Center and select the Products and Services tab. Choose “Import a file.”

Browse for the saved spreadsheet and select “Open.”

Ensure that all item information is in the correct fields and click “Import.”

Also, here’s a handy tip:

If you want to update your pricing, across-the-board, you can export a product and services list. Then, you can update prices in a spreadsheet and re-import.

Delete a QuickBooks Online product or service

Is your Products and Services list getting cluttered with obsolete items?

You can reduce the clutter by deleting them. Technically, you’re making them “Inactive.” But, the effect is the same.

To do so, click the checkbox on the left-hand side of the page. Then, at the top, select the Batch actions dropdown. Select “Make inactive” then click “Yes” to confirm.

Change the columns in the Products and Services list

quickbooks online products and services change columns — Credit: qbo.intuit.com

Another action you can take if you feel like the Products and Services list is too cluttered is to remove columns. You can also add them too.

To do so, click the gear icon. Not the one in the far upper right, the one above the Action heading on the right side of the list.

Here, you’ll see every available column (after you click “Show more”). Click the checkboxes to toggle them on/off.

You can also determine how many rows you’d like to see in the Products and Services list. Plus you can “Compact” the list and “Group by category.”

QuickBooks Online products and services

With your products and services set up, maybe you’re ready to run some periodic sales promotions? Read this post to see how to do that in QBO.

Do you have any other tips or tricks for managing your products and services in QuickBooks Online?

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FIFO Method? Weighted Avg? The Full Model of Process Costing

October 19, 2021December 29, 2018 by KCB

process-costing-weighted-average-vs-fifo-featured

There are two methods that can be used to allocate costs in a process costing system. They are weighted average or FIFO (First In First Out). Accountants and business owners can decide which method to use based on their preference for simplicity or accuracy. Of course, there are differences between the two methods. But, they also share similarities…

The FIFO and weighted-average methods each always use these same inputs:

Ending WIP units
Percentage complete for materials & conversion
Amount spent on materials & conversion

Here’s a look at some of the differences between the weighted-average and FIFO methods (by step):

Unit Reconciliation	Cost/Equivalent Unit	Cost Allocation
Weighted-average method
Considers begin WIP 0% complete	Allocates the value of begin WIP	Begin WIP + Monthly expenses = Amt completed & transferred + End WIP
FIFO method
Considers begin WIP partially complete	Allocates expenses incurred	Monthly expenses = Amt to complete begin WIP + Amt started & completed + End WIP

Both methods are, generally speaking, similar. Which you should use depends in large part on preference. It also depends on your ability to conceptualize what is taking place.

A process costing system is primarily used by manufacturing companies that mass-produce a bunch of the same product. A process costing system can be contrasted with a job order costing system. A job order costing system would be used by companies that offer custom products and/or services.

Download the example workbook

Looking for a spreadsheet to build an entire process costing system (weighted-average method)? Read this post:
DEFINITION AND FEATURES OF A PROCESS COSTING SYSTEM

Complete the form below and click Submit.
Upon email confirmation, the workbook will open in a new tab.

Process costing – FIFO vs weighted-average

Need more help with your accounting homework? Read this:
WORKSHEET POSTS

The weighted-average method might be considered simpler. But, the FIFO method might be considered more accurate. That being said, once the groundwork is laid for a FIFO process costing system, calculations should be made automatically and require a minimum of effort on your part. That is…if everything’s set up correctly.

Below, I’ll compare the calculations from the weighted average and FIFO methods. Each will refer to the same inputs – Item1, Dept A, from the Process Costing workbook. That way, you’ll be able to compare the two methods side-by-side, apples-to-apples, and decide which makes the most sense for your company. Then, you can move on to more pressing matters.

Unit reconciliation

Have more questions about the FIFO method of costing? Read this post:
FIFO METHOD – WHAT IT IS, WHY & HOW TO USE IT

The purpose of unit reconciliation is to determine the total number of units to allocate costs across in a given month.

Obviously, those units that were completed will be included. But, also factored in, are “equivalent units.”

Equivalent units

Equivalent units = WIP units × Pct complete

These units are calculated for direct materials (DM), direct labor, and overhead individually. Why? Because these value-added costs are not applied uniformly.

For simplicity’s sake, overhead is assumed to be applied on the basis of direct labor hours. These two costs are, therefore, combined in this example and called conversion (costs).

Pct complete examples

For example, a particular product might have all its materials added immediately when it enters a department. The labor and overhead, however, might be added at a slower pace as those materials are assembled, mixed, machined, or whatever… In this case, the percentage (Pct) complete might be high for DM, but low for conversion.

Conversely, the most costly direct materials might be added during the last operation in a department. Since a lot of conversion costs have been applied, but the most expensive DM are not added until the end, the Pct complete might be high for conversion, but low for DM.

Hopefully, that makes sense. Reread it if you need to.

It all depends on the product being produced and the nature of the value-added in a given department.

Beginning WIP units

You’ll notice that Beginning WIP units aren’t factored into the unit reconciliation calculation for the weighted-average method. With the weighted-average method, Beginning WIP is considered to be started & completed in the current month.

No matter if last month’s Ending WIP units were 99% complete for DM and conversion costs. This month, Beginning WIP units are considered 0% complete. Under the weighted-average method, that is.

With the FIFO method, Beginning WIP units are included in Total units reconciled. Specifically, the equivalent units that weren’t included in last month’s calculation. For example, suppose last month’s Ending WIP units were considered 30% complete. Then, this month 70% of the Beginning WIP units will be used in the Total units reconciled calculation this month.

In fact, if you change the Pct complete for DM and conversion to 0% for the FIFO method, you’ll see that the Total units reconciled are the exact same amount for both methods.

DIFFERENCE 1: THE WEIGHTED-AVERAGE METHOD CONSIDERS BEGINNING WIP TO BE 0% COMPLETE. THE FIFO METHOD DOES NOT.

Completed & transferred vs started & completed

This subtle difference in verbiage makes a big difference in calculations between the weighted average and FIFO methods.

As mentioned above, Beginning WIP is always considered to be 0% complete with the weighted-average method. Ending equivalent units are added to Units completed & transferred to determine the Total units reconciled with the weighted-average method.

With the FIFO method, that is not the case. Since Beginning WIP units are already considered partially complete, Units started & completed are quantified separately. As the title implies – these are units that were both started and finished in a given month.

Total units reconciled

The weighted-average method adds the Ending WIP equivalent units to the Units completed & transferred to arrive a quantity for units reconciled.

The FIFO method does something similar. Ending WIP equivalent units are added to Units started & completed. Beginning WIP equivalent units (1 – Pct complete) are then also added to that quantity.

Cost per equivalent unit

Unit reconciliation only focuses on units. No costs were considered. Now, it’s time to tally costs for the month and to calculate a Cost per equivalent unit.

Cost per equivalent unit = costs to be allocated ÷ Total units reconciled

Comparing total costs between months, years, or even days doesn’t give you the whole picture. In order to have the whole picture, total costs must be compared using some sort of common denominator.

Hence the need to break costs down on an equivalent unit basis. Equivalent units take into consideration how many units were started, completed, transferred, and left in WIP at the end of the month. Every unit and every dollar is accounted for. So that accurate comparisons can be made.

Total costs to be allocated with the weighted-average method includes the value of Beginning WIP + Monthly expenses incurred. So, since Beginning WIP units were considered 0% complete and added to the Total units reconciled, the Beginning WIP amount (last month’s Ending WIP amount) is also included in the numerator to offset these units.

DIFFERENCE 2: THE WEIGHTED-AVERAGE METHOD ALLOCATES THE VALUE OF BEGINNING (LAST MONTH’S ENDING) WIP. THE FIFO METHOD ONLY ALLOCATES EXPENSES INCURRED THIS MONTH.

Total costs to be allocated under the FIFO method only includes the Monthly expenses incurred. Only costs from this month are used to calculate Cost per equivalent unit. Because, unlike the weighted-average method, only units from this month are reconciled.

Because the weighted-average method includes the value of Beginning WIP and the FIFO method does not, the weighted-average method will always have higher Total costs to be allocated. Whether that translates into a higher Cost per equivalent unit depends on the Beginning WIP units and the Units started & completed.

Cost allocation

Whereas the Total costs to be allocated include costs that the company started the month with (weighted-average method) and those that were added. The Total cost allocation includes costs that were passed to the next department (or finished goods) and those that the company ended the month with.

The Total costs to be allocated should always equal the Total cost allocation. Costs can’t just disappear into thin air.

In the weighted-average method, the equation balances as follows:

Beginning WIP amount + Monthly expenses = Amount completed and transferred + Ending WIP amount

In the FIFO method, the equation balances as follows:

Monthly expenses = Amount to complete beginning WIP + Amount started and completed + Ending WIP amount

Weighted-average or FIFO for process costing?

Conventional wisdom says that the weighted average method is simpler than the FIFO method. I suppose this is said because Amount to complete beginning WIP need not be calculated for the weighted-average method.

Do you have homework questions about a job order costing system too? Read this post:
JOB ORDER COSTING SYSTEM – EXAMPLE, TEMPLATE, & HOW-TO

But, since you will be determining the Pct complete for DM and conversion costs for Ending WIP units (which will become your quantities for next month’s Beginning WIP units) it shouldn’t matter. The calculation is already made.

Learn more about cost minimization here.

Better to go with the method that produces a more accurate Cost per equivalent unit. Rather than one that blurs the lines between what was done last month and what was done this month. Particularly if you are in a super-competitive environment where accurate costs are needed to price appropriately.

Yes, I know that the Spreadsheets for Business Process Costing example workbook uses the weighted-average method. Confession: it wasn’t until I wrote this post that I really explored the difference between the two methods. If it ever makes sense to redo the process costing example workbook, I will use the FIFO method.

What do you think? Are there any circumstances where the weighted-average method makes more sense?

Is there something I missed? Or, do you have any questions?

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