Q: We are planning to convert our accounting system to QuickBooks next month, and we plan to use QuickBooks primarily for job costing. Do you have any recommendations related to our setup that we should consider?
A: You are asking the right question at the right time. I sometimes find that companies using QuickBooks job costing do not obtain the results they desire because the default job-cost preferences were not set up correctly.
So that your implementation of QuickBooks provides all of the job-costing capabilities and functionality QuickBooks has to offer, activate the following eight QuickBooks preferences:
1. Estimates. Enable estimates from the QuickBooks menu by selecting the Edit, Preferences, Jobs & Estimates, Company Preferences tab, and then select the radio button labeled Yes in the Do You Create Estimates? box. This setting will enable you to link estimates to your jobs.
2. Progress Invoicing. Enable Progress Invoicing by selecting the Edit, Preferences, Jobs & Estimates, Company Preferences tab, and then select the radio button labeled Yes from the Do You Do Progress Invoicing? box. This setting will enable you to invoice part of a job based on either the job completion percentage or the completion percentage applied to each line item in the estimate.
3. Inventory warning. Enable a warning to display when there is not enough inventory to sell based on what’s available. To do this, select the Edit, Preferences, Items & Inventory, Company Preferences tab, then check the box labeled Warn if not enough inventory to sell and select the radio button labeled Quantity Available. This setting will create an alert when you create an estimate that includes goods not on hand so you can quote the customer a more accurate delivery time along with your estimate.
4. Use time and billing. If you use time and billing, go to Edit, Preferences, Time & Expenses and select the Yes radio button in response to the Time tracking box’s question Do you track time? This setting will allow timesheet users to record their actual time against jobs.
5. Create invoices from time and expenses. If you invoice using the time and material billing method, select the Edit, Preferences, Time & Expenses, Company Preferences tab, then check the box labeled Create invoices from a list of time and expenses. This setting reminds the invoice preparer that time or reimbursable expenses related to the job exist, and provides an easy method for including those costs on the invoice.
6. Reimbursable expenses. From the same tab, you can enable the reimbursed expense option by checking the box labeled Track reimbursed expenses as income. This setting will enable you to more easily post out-of-pocket job expenses (such as meals or travel) to your jobs for reimbursement purposes.
7. Charge payroll to jobs. If you use QuickBooks Payroll and charge payroll amounts to jobs, select the Edit, Preferences, Payroll & Employees, Company Preferences tab, then check the box labeled Job Costing, Class and Item tracking for paycheck expenses, and select either the Entire paycheck or Earnings item option. This setting enables employee payroll charges to flow directly to job-cost reports.
8. Subcontractor-provided items. When setting up new service items, make sure to check the box labeled This service is used in assemblies or is performed by a subcontractor or partner. Thereafter, when you pay subcontractors, make sure to use the items tab instead of the expenses tab to add line items to your estimates, because this will allow you to add a markup to each item when you create an estimate. This setting produces better organized job-cost reports, and it also collects the information needed for producing subcontractor Forms 1099 at year end.
It has been my experience that once these eight preferences are enabled, QuickBooks job costing works better for many job- and project-costing situations.