05 Sep NEW REVISED AND REWORKED ITEMS
As business owners and managers we want to know where our money is coming from and where it is going; or better known as income and expenses. Within your software program there is more than one way to track where your income is coming from – use Items! You do not need to have a chart of accounts that is a mile long! You do not need to keep track of every detail of every item sold within your chart of accounts.
As a mentor I work with businesses revising their chart of accounts to create one that everyone understands and can work with. What good is anything within your business if no one can use it, much less use it properly? Then why do that to your chart of accounts.
In our blog Chart of Accounts Effects on Business we learned that a chart of accounts is a list of accounts to which your money is allocated. A chart of accounts is exactly that a chart of accounts, it is the basis for everything within your accounting system.
But it is not the only way to track everything within your accounting program; to date I have not seen an accounting software program that does not provide you with Items.
Items are specific items that are sold – they can be products or services – that are directly connected to accounts within your chart of accounts. You may sell Widget A and Widget B – you would create a separate item within your accounting software program for both widgets, then attach those items to a one account in your chart of accounts – i.e. Widgets. This provides an avenue to have one account with multiple different widgets.
Items provide you with the ability to run reports. Multiple customers state they have to know exactly how many Widget A’s they sold every week, month and year – that they have to have an account to be able to track this information. You do not need a separate account; you have the ability to run those reports on each widget whenever you want.
Receive the information you need the easiest way. Do not use your chart of accounts as items, use items as they are meant to be used. The more precise you are with the creation of your items; the more precise the information you will receive.
Prior to creating your item list, sit down and review what information is truly required. Items just like the chart of accounts can become too overwhelming if improperly used. If you have an item for every piece and part sold, the person creating the invoices may revert to picking the first part or the last one without paying attention to all of them in-between. Or as I have seen many times they have a favorite item they believe works the best with the right price – so they always pick that one.
Now I will admit there are times when every piece and part has to be entered on to an invoice. This may be an instance when you have to have an Item for each one. If this is the case then all individuals involved in using the Items will require proper training with processes and procedures in place prior to implementation, so the above does not happen and all of that work was for naught.
Take the time and the effort to create a working Item list that is easily understood and usable for all employees involved. This creates uniformity throughout the billing process to reporting.
Another advantage to the proper usage of Items is once they have been completed and linked to the proper account, your software program can fill the lines on customer invoice with the exact terminology you want used, all while linking that it to the proper account in the chart of accounts, and giving you the capability of run reports for complete visibility to all activity.
The proper usage of Items can be beneficial throughout the entire accounting practices involved. As stated above do not use your chart of accounts as your items, use your Items as they were intended. They provide more control and visibility throughout the accounting process; let Items work for you.
Applied Management Group is here to work with you to create an Item list that will work for you and your business, while revising your chart of accounts, both giving you the information you need. Do not go without what you need, just do it in the right manner for success.