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QuickBooks for Contractors Tip: How to Book Payroll to COGS

by Ruth Perryman 1. July 2009 12:10

Question: We are a privately-held security guard service company using QuickBooks Premier, Professional Services Edition, 2009. We have roughly 60 employees in six states, and use QuickBooks Enhanced Payroll. Currently, all of our payroll expenses report as an operating expense on the P&L. We would instead like our billable payroll to show up as COGS (or “Cost of Services Sold”) on the P&L, thereby reflecting a true Gross Profit. We are not currently using the Time & Billing features of QuickBooks. Instead, timesheets are faxed to the corporate office, that data is entered into the QuickBooks payroll module, and then again onto invoices for each client. (Our agreements usually call for hourly bill rates, which vary slightly by employee class.) Is use of the Time & Materials feature the only route to capture COGS? We appreciate any help you can provide.

Answer:
You don’t need to use the Timesheet feature to book your billable payroll to COGS, but if you do it’ll make your entire process flow more smoothly because you can use the time entered not only for payroll but also to create invoices.

If you don’t want to use Timesheets, you can create a new compensation payroll item mapped to COGS. Just go to List > Payroll Item List, click on the Payroll Item button at the bottom, select New and then go through the wizard, choosing compensation as the item type and a COGS account for the expense account.

If you choose to use Timesheets instead, you first need to turn on job costing in several places:

   1.   Go to Edit > Preferences > Payroll & Employees > Company Preferences and check the box next to Job Costing, Class, and Item Tracking.

   2.   Go to Edit > Preferences > Time & Expenses > Company Preferences, click the Yes button under Do you track time? and the check the box next to Create invoices from a list of time and expenses.

   3.   Go to the Employee Center and click on the Manage Employee Information button, select Change New Employee Default Settings and check the box next to Use time data to create paychecks.

   4.   Double-click on each employee that you want mapped to COGS, change the tab to Payroll & Compensation Info and check the box there too.

You can enter Timesheet information at either Employees > Enter Time > Use Weekly Timesheet or Customers > Enter Time > Use Weekly Timesheet. Make sure to enter a Customer:Job, and choose both service and payroll items that map to a COGS account (note: service items are different from payroll items, you can add/edit them at Lists > Item List).

When it’s time to create invoices, go to Customers > Invoice for Time & Expenses.

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Ruth Perryman - QuickBooks Specialist Written by Ruth Perryman, CMA, CFE, CFM, MBA, DPA (ABD)

Ruth is the president of The QB Specialists, an Intuit Solutions Provider that has helped thousands of businesses throughout the United States, Canada and even the Caribbean get the most out of QuickBooks since 1996. Ruth has over 20 years of industry experience, including 5 years as a Chief Financial Officer. She is an Advanced Certified QuickBooks ProAdvisor and a member of Intuit’s Trainer/Writer Network. She is also certified in QuickBooks Point of Sale and Enterprise.

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