How to Handle Unbillable Labor in Quickbooks
One of the many features of QuickBooks is the ability to assign and make billable the labor expenses to customers. Doing so allows a small business owner to generate reports that show the actual profit for each job one is hired to do by a customer. Without this information, it is impossible to know if you are charging enough to handle all expenses and make a profit on the job. But unbillable labor, labor that includes hours for workers traveling to and from the jobsite, or office staff that cannot be directly assigned to one customer, must be handled differently.
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Instructions
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The Fake Customer Method
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Open the QuickBooks company file by double-clicking the QuickBooks icon in your desktop menu. Click the "Enter Bills" icon on the home screen. When the screen opens, locate the "Billable" column in the lower half of the screen. It will be the fifth column over on the "Expenses" tab, and the eighth column over on the "Items" tab.
The "Expenses" are bills you pay; if you are billing a customer for these expenses, click in the "Billable" column. The "Items" are those items you must purchase to complete a job; these are the same items or services you sell regularly.
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Create a fake customer named "Overhead." To do so, click the "Customer Center" button. When the "Customer Center" opens, locate the "New Customer" button and click it. The new customer window pops up automatically, where you can enter all necessary information on the new customer. Enter the term "Overhead" into the customer name box. Information other than the name is not needed.
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Create two jobs under the fake customer by clicking the "New Job" button when the Overhead customer is highlighted. Name the first job "Overhead - Unbillable Labor" and the second "Overhead - Expenses."
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Enter all nonbillable labor as being "billable" to the "Overhead - Unbillable Labor" customer/job. This would include the hours for office staff, senior staff members and janitorial staff. This would also include the hours that the labor force is traveling to and from the jobsite, out purchasing materials or performing any task that you will not be billing a customer for. You can generate a report of transactions by customer and then choose the "Overhead - Unbillable Labor" customer/job to view the overhead expenses. You do this by clicking the "Reports" button on the top menu bar, scrolling down to "Transaction List by Customer" and clicking.
The Class Method
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Open the Class list. Click on the "Lists" button in the top menu bar. When the list menu opens, choose the "Class List" option. The class feature of QuickBooks can be used to create another category to track QuickBooks data. It is referred to as the "Mighty Putty" of features. "Mighty Putty" is the pliable clay that when exposed to air turns as hard as steel. The "Class" feature is pliable until it is used to begin tracking and once the class has been created for a specific focus, it cannot be changed. For example, if you have created classes to track income and expenses by different store locations, you cannot then track another aspect using the class feature.
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Examine the class list to make sure no classes have been assigned. If the class feature is already in use to track another aspect of your company data, you will have to use the fake customer option to handle unbillable labor. If the class feature is not in use, hold the "CTRL" and "N" keys to create a class named "Overhead."
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Create a sub-class under "Overhead" named "Unbillable Labor" and another named "Expenses." You create a sub-class in the same screen by entering the name in the class name list, clicking in the small box labeled "Subclass of" and choosing the "Overhead" option.
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Assign all unbillable labor expenses to the "Overhead - Unbillable Labor" class category. You do this by choosing the class in the last right column in both the "Items" and "Expenses" tab located on the "Enter Bills" screen. To open the "Enter Bills" screen, click the icon on the QuickBooks home screen.
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References
- Photo Credit laborer resting image by Joy Fera from Fotolia.com
