In a previous post we examined the procedures that would yield a profit and loss report with crucial cost of jobs numbers. We wanted to be able to find that number, and the resulting margin, easily and quickly.
There are some transactions in QuickBooks that can make this setup more difficult.
For instance, how does one post payroll? Much of the payroll may be a direct job expense. Undoubtedly though, some of that payroll expense will be for administrative or some other expense not directly associated with a job.
How can this be accomplished?
Here is a section of the Rock Castle Construction Profit and Loss report. This is the cost of goods sold section, the section where we would like to see all direct job costs.
Payroll. There’s no payroll expense.
The above screenshot is a section of the same profit and loss report. This comes from the Ordinary Expenses section. See the payroll expenses? All payroll expenses, even though they are a direct job cost, are being posted here.
That’s not good and really distorts the cost of jobs number.
If we examine the Payroll Item being used, we find those compensation type items have all been setup to post to the Payroll Expenses account. And the Payroll Expenses Account is an Expense type of account.
There could be several ways to fix this. The account may be able to be edited and changed to a COGS type account. If this is the Payroll Expenses account QuickBooks creates be default once payroll features are turned on, that isn’t possible.
An alternative would be to edit the payroll items to post to a different account.
In the above graphic, the Regular Pay payroll item is being edited. It will now post to an account named Direct Job Labor.
Since there are already transactions using this payroll item, QuickBooks presents us with the above shown window. This allows us to specify what we want done with the transactions already in QuickBooks that use this payroll item.
In our case, we will choose “Update transactions starting on”, and use the beginning of the current calendar year.
That way, we have all this year with better cost of jobs numbers on our profit and loss reports. We also won’t alter account balances from previous years, something we definitely want to watch out for.
Notice we now have $9,060.00 in Direct Job Labor expenses and those expenses show in the cost of jobs or COGS portion of the profit and loss report.
Keep in mind there are several payroll items in the sample file and we only edited one of them. That’s why only part of the payroll expense balance moved to the new account.
That may be correct. A company probably has both direct job labor costs and administrative labor costs. Different payroll items would be needed for each so the resulting transactions could post to the appropriate accounts.