How to have billable time show in COGS Desktop version

Good morning, @jackals.

Great to see you in the Community. I can assist with the information needed for COGS in QuickBooks Desktop.

Time for employees is an expense that you keep track of, COGS is only for the Cost of Goods Sold.

Functions for this in Quickbooks are:

1. Inventory Accounts
2. Average Cost

COGS Tracking can be tough and I'm here to help at any time. Reply to this post if further assistance is needed.

Thanks @Kayla H, understood that's how things normally work; just that for this particular client and job I was hoping to be able to reflect it in the COGS. I assume from your answer that there is no practical way to do that.

I replicated the first step you provided above and it showed in my COGS account, jackals. 

It'll reflect in your COGS account if you applied the billable time to a sales transaction (invoice or sales receipt) and employee's paycheck. For your Service item, when you checked the This service is used in assemblies or is performed by a subcontractor or partner box, you can associate your Expense account to COGS. 

Create the Single Time Activity, and make it billable to the job. Enter an Invoice it'll show in your COGS account. 

You can run the COGS account QuickReport to review the transactions. Let me show you how: 

1. Go to Accountant menu and click Chart of Accounts. 
2. Choose the COGS account and click the drop-down arrow beside Reports. 
3. Select QuickReport. 
4. Modify the details to view the transactions you need. 

If you need anything else, please let me know. 

Thanks for jumping in @Catherine_B.  What specific steps did you follow? I tried my scenario 2 again, first checking that the service item I select has been set up to point to the correct COGS account in the Expense Account field (and of course the correct income account).  [Notes: 1. The service item was created using Item/New and selecting Service, then clicking to open up the Purchase and Sales information to enter the expense and income accounts. 2. I have other items, i.e. non service items, that also appear in COGS if entered into the invoice after first creating a bill from a vendor, but no entry in COGS if I simply enter them in the invoice without the prior bill being created.]

I created the invoice and the transaction shows up in the correct income account but still nothing in COGS. 

What do you mean by "if you applied the billable time to a transaction."? Is that something else apart from what I'm doing? 

In Preferences/Time and Billing, I have all 3 Invoicing Options selected. My desktop version is Premier 2019.

Hello there, jackals,

You just have to make sure that the expense account for the employee's payroll item is set to Cost of Goods Sold. Here's how:

1. Click Lists on the menu.
2. Select Payroll Item List.
3. Locate the payroll item, right click to select Edit Payroll Item.
4. Click Next until you reach the Expense account section. Click the drop-down and select COGS.
5. Click Finish.
6. Select when to update the changes made, click OK.

You'll want to create the payroll after this. Once you've paid the employee, the expense flows to COGS. You can run the Profit and Loss report to check if it's now showing.

Stay in touch with me if you have additional questions.

Time won't show up on your financial statements until it is used in some way on a transaction.

For example, it will appear when it is pasted into a payroll checks when using time for payroll, or onto a check paying a vendor. 

Thank you @BigRedConsulting , @MaryLurleenM, @Catherine_B, for your insights. As I understand, there has to be an associated transaction.   I'll mull over it and experiment over the weekend before replying again, as what I want to achieve doesn't fit neatly into standard, e.g. one aspect is that members of an LLC are Other Names, not Employees, as they aren't paid salaries and therefore aren't paid through payroll, and what they are paid doesn't equate to their billed labor earnings.

Have a great weekend.

I'm still working on this, so not yet resolved. Next week I'm meeting with someone who has worked with this before and will report back thereafter.

@jackals 

RE: I'll mull over it and experiment over the weekend before replying again, as what I want to achieve doesn't fit neatly into standard, e.g. one aspect is that members of an LLC are Other Names, not Employees, as they aren't paid salaries and therefore aren't paid through payroll, and what they are paid doesn't equate to their billed labor earnings.

A couple of points:

- You can change those Other Names to Vendors and then when you write them checks you will be prompted to include time on the checks.  This will get the time onto your financial statements.

- To the extent that they are owners of an LLC, if you don't pay the owners for their time there is no expense for it.  This is known as "free labor" and you can't claim as an expense - since it isn't one.

Thanks @BigRedConsulting. I tried the vendor method but it comes with complications that the spurious payroll solution that I've settled on doesn't.

@jackals 

RE: I'm having to create a spurious payroll to make sure the amounts end up in COGS, even though that's not the basis for charging the client nor for paying the members. 

I really don't think you should do this, unless I misunderstand something.  The time is not GOGS if  you don't have any actual Costs associated with it.

The resulting costs wills appear on your P&L, but they're not real.  I suppose you could work around this by offsetting the COGS account you use on the paychecks (also weird) with a Journal, perhaps to an Equity account.  This would neutralize the GOGS/expense and alter the Equity account to reflect the work the owners have put into the business, which kind of makes sense.

I still don't understand why you (or anyone) would want to do this?  To me, time is not an expense just like mileage is not an expense.  (The costs of running the company car are an expense, and they are reflected in fuel, maintenance, depreciation, and so on.)

@BigRedConsulting  - I'll implement and see if it works as I expect.  Once  I've done that, I'll report back on the mechanism, the good and/or the bad.

The spurious payroll is the solution, remembering the context is an LLC with members who aren't/can't be paid salaries, setting up each member as an employee with the appropriate rate that they are paid, and all the typical withholding etc. of  the typical salaried employee set to zero.

The item that is billed for the member's effort is set to the rate charged to the customer. 

The COGS then reflects the cost of the member's time correctly, while the excess income over that is not.  

Hi Jackals,

I'm having a similar problem - we're a LLC also.  Can you tell me what you did in detail that worked for you?

Thanks!

Allow me to share some info about making billable time appear in COGS, ES4.

Time records are not financial transactions and have no amount associated with them. Thus, when you pay your employees, their time will appear when it is pasted into a payroll check or a check paying a vendor.

To add a billable time in COGS, we'll have to set your member as an employee. I'll guide you how:

1. From the Employees menu, select Employee Center.
2. Click the New Employee tab.
3. Enter the name necessary details.
4. You'll have to ensure that all the withholdings are set to zero.
5. Click on OK.

Note: All the items that are billed are set to rate charges to the customer.

To learn more about how QuickBooks handles inventory assets, average cost, and COGS, I encourage you to visit this article: Understand Inventory Assets and Cost of Goods Sold Tracking.

Additionally, I've included an article about tracking job costs. This will help you track the money you spend and make: Job Costing in QuickBooks Desktop.

Stay in touch with us for other QuickBooks related concerns. This way, we'll be able to assist you further.

Subject to correction as it was quite some time back that I implemented a working solution to this and I simply looked at my completed entries to document this, here are  the specifics:

EXAMPLE DETAILS/PROCESS

In Chart of Accounts

create:

50000 COGS

50100 Direct Labor

50110 Direct labor - member 1

Create Service item:

Lists --> Item List / Item --> New

First:

5.1 Pro services

    Tick This services is used in assemblies or is performed by a subcontractor or partner

    Expense Account 50100

    Description of Sales Item e.g. Labor Hours

    Income Account (the income/revenue account tied to the customer)

Second:

Member's name as a subitem of 5.1 Pro services

    Tick This services is used in assemblies or is performed by a subcontractor or partner

    Cost (enter the hourly cost [if T&M possibly this is the same as Sales Price below])

    Expense Account 50110

    Description of Sales Item e.g. something more specific to this member's services.

    Sales Price (enter the hourly cost billed to the customer)

    Income Account (the income/revenue account tied to the customer)

Create Payroll item

Employees --> Manage Payroll Items --> View --> Edit Payroll Item List

(I get an error in the process if I try to create a new one, so I found pre loaded ones in the list and simply amended them)

Double click the selected item to be changed to open it.

Change the name to what you want and make sure it is not marked as inactive.

Next screen, select 50100 Direct Labor as the tracking account, and Finish.

Create employee

In Employee Center, Create New Employee.

Fill in all applicable info

On the Payroll Info tab, enter payroll schedule and an Earnings Item, e.g. Direct Labor Hourly, with the hourly rate that the Member earns (the cost, not what you charge the customer).

And add any other applicable items

Tick Time Data To Create Paychecks.

Entering time

Employees --> Enter Time and select Weekly Timesheet or Single Activity.

Select Customer Job

Select the service item - this is the 5.1 above.

This creates the entries that can then be selected when creating the invoice to send to your customer.

VERY IMPORTANT: TIME AND PAYROLL IS RUN WITH THE EMPLOYEE ENTITY - WHEN SUBSEQUENTLY WRITING A CHECK TO THAT PERSON, IT IS NOT PAID TO THAT EMPLOYEE ENTITY BUT TO AN OTHER NAMES ENTITY THAT YOU CREATE UNDER LISTS --> OTHER NAMES LIST.