What Are Service Items and How Should I Use Them?

Service Items are one type of Item and are maintained on the Lists->Item List menu selection.

See our article on all of the Item types supported by QuickBooks for more information.

Generally speaking, Items are designed to pre-fill invoicing and purchasing forms. Service Items normally include charges for labor or professional fees that your firm buys or sells. You should use Service Items for those charges for labor and professional fees that you plan to included on invoicing and purchasing forms.

Once you’ve created a Service Item, you can’t change the type to another type of Item, so use care when choosing the Item Type.

The New Item window appears below. How you record values in these fields depends on whether you’re creating a Service Item that you purchase or an Item that you sell. Some fields only appear if you’ve set a preference.

If you’re creating a Service Item used in purchases, record your vendor’s unit price as the Rate and choose an expense account for the Account. If you’re creating a Service Item you sell, record your typical selling price as the Rate and choose an income account for the Account.

Since you’ll have a chance to change the Description on invoicing and purchasing forms, you can either leave the Description blank, enter the most common Description, or create different Service Items for each unique description. QuickBooks stores the actual description recorded on each line of every invoicing and purchasing form, so the Description you enter when recording the Item is only an aid to filling out a form.

If the Service Item is used in assemblies or performed by a subcontractor or owner, click the checkbox indicating This service is used in assemblies or is performed by a subcontractor or partner. Doing so will allow you to record both the revenue and expense for each Item in separate accounts. Such Items can be used on both sales and purchase forms.

When you’ve recorded all relevant fields, click Next to save your changes and enter another Item or click Ok to save your changes and close the window.

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  1. I have a clothing mfg company. I have service items created for cutting, sewing etc and there part of an assembly. The way this is set up, when you sell a product item it then d – cogs and c- sales. When I enter bills to pay the service vendors, how do I enter them? Their not expenses because their already included in cogs and if you choose to enter them to their respective service items accounts, it still d – cogs and c- AP. This way charges cogs twice. Thanks for any help!

    • Chief Mechanic says

      Cost accounting is a complicated topic, and you should check with your CPA, but here’s a very simplified explanation based the information you provided. Fortunately, the answer to your question most likely boils down to a misunderstanding.

      Since you set up your items for cutting as service items, there’s no expense account unless you indicated this item is performed by a subcontractor. So we’ll assume you checked that box. When you check that box, service items are NOT expensed to COGS. The cost you see when you set up the item is what is effectively a standard or estimated cost – not your actual cost. In other words, it’s for reference only. In cost accounting, there are ways to account for purchase variances, but that’s beyond the scope of this reply.

      Therefore, let’s use your cutting item as an example. All you need to do is enter your vendor bill with the actual cost under the Items tab and use the item for that service. The actual expense will end up in the expense account you specified for that item.

      There’s one big limitation to this approach. Since these are service items, all of the bills you record are expensed based on the bill date, even if those bills applied to services that were used to build assemblies in other periods. As a result, your income & expenses might not be matched up.

  2. If I buy units and then rent them for year or two, am I recording it as inventory item or service? Since I don’t sell them, just charging for the service I provide with these units.

    Thank you

    • Chief Mechanic says

      It’s a service, not inventory. Typically, a customer will take ownership of the inventory you sell, and here you aren’t transferring ownership. If you mistakenly set up your items as inventory, every sale transaction will lower your inventory. You’ll soon find yourself with negative inventory, when your actual number of units hasn’t changed. When you collect revenue but don’t transfer ownership to something, use a service item.

  3. Quesiton on Building assemblies-what income and expense should I put the labor in? Setting labor up as service and checked the box for the service being used in an assembly

    • Chief Mechanic says

      The income for an assembly is sent to the Income Account specified for the assembly as a whole. Assemblies don’t break out income for the line items of the assembly, so the income account you specify for the labor line item of your assembly shouldn’t matter.

      For the expense side for the labor line item, be sure to specify the cost on the labor item. That unit cost multiplied by the labor quantity used on the assembly is what will be posted to the expense account for the labor item. It’s an important to understand that building an inventory assembly will reduce your expense because those expenses are being capitalized – transferred from the expense account to the inventory asset account. The expense account you specify for the labor line item will be credited (reduced) by the cost of the labor component for the assemblies you build. The impact is that building assemblies can reduce your expense, raise your assets, raise your net income (by lowering expenses), and raise your tax liability. Before incorporating labor components into an assembly, you should review this with your CPA to make sure you’re both aware of the impact it will have on your company’s financial reporting.