The Role of Service Items in Labor Cost Accounting with QuickBooks

Often, to truly understand your labor costs, you must be able to break those costs down into the type of work. For example, when building a house, how much did the plumbing cost versus the cost for framing? If you can analyze your costs both by job and by type of work, it gives you the tools to better be able to refine your estimates and improve profitability.  

In QuickBooks, use service items (also known as cost items or cost codes project management software) to define your types of work. Taking the example above, you would have a service item called plumbing and another called framing to distinguish between the two types of work. 

However, in most cases, you will want to break down your costs even more. With QuickBooks this is easy. QuickBooks supports the use of subitems. So, beneath the category plumbing you can add different subitems to reflect the different types of plumbing work. You can make these as broad or as specific as you want for your business.

Every business is different so how you define work is very much a part of your strategy and how you run your business. To start you can implement a basic structure at the top level and evolve over time by adding subitems as you recognize areas where you need a more specific breakdown of costs. 

Once you have defined your list of service items add them to time tracking. As they track their time they will select the job and the service item. The hours are then defined by both the job and the type of work performed allowing you to track labor costs by both job and type of work.

Dapt facilitates the analysis of profit and loss (P&L) by both job and service item by managing the payroll process. Dapt prepares the submission of hours to payroll, maintaining the allocation of time by the dimensions tracked in time tracking. Thus, when the hours are converted to pay the $$$s are pre allocated by these time units (job/service). 

Dapt then uses this information to create accounting entries which are then posted to the accounting system. When you run your P&L by job you will be able to see the costs broken down by the work performed. 

This provides critical information as you grow your business. Especially when you compare your actual costs to your original estimate. Reviewing the breakdown of job costs broken down by type of work will allow you to identify areas where your costs exceed your estimate and thereby highlight areas for improvement - either refinement of your estimates or improvements that reduce costs.

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