By Amanda Karen | CrunchSum
As you enter your financial activity in QuickBooks, you can choose to track your transactions with accounts or items or both. Do you know what the difference is between the two and when you should use one over the other?
In general, accounts should be created and used when you want the account to appear plainly on your financial statements, such as your balance sheet and income statement.
Items should be used when you want to track more detailed account information. For example, in order to track the revenue for specific products sold, you can set up an item for each product to track individual sales, rather than creating individual accounts for each product.
You own a sandwich shop. You sell three types of sandwiches: ham, turkey, and salami. You want to record and track the sales activity of each sandwich type. The best way to accomplish this is by:
- 1. Creating a new income account to track sales (or use an already existing income account).
- 2. Creating a new item for each sandwich and link them to your sales account.
The Salami Sandwich item is linked to the Food Sales income account.
For reporting purposes, by using only accounts to track sandwich related transactions, you are only able to view sales and income as a lump sum of all food sales and income recorded.
What if you want to know how much each sandwich type is contributing to the food sales and income amounts? This is where using items come in. The Item Profitability report below illustrates how using items proves beneficial:
As you can see, when using items we are able to see the exact cost and sales detail for each sandwich. This is something that by using only accounts, cannot be accomplished.
Understanding the difference between accounts and items, the importance of each, and when to use them, will help provide you with the most accurate and easy to understand financial reporting information for your business.
How has using items benefited your financial information and business? Leave a note below or send an email to email@example.com.
CrunchSum provides web-based bookkeeping and QuickBooks support services to web and technology companies.