Overhead

I've got some information about handling overhead expenses, LGierich.

Overhead costs are expenses not directly related to creating products or services but must still be paid on an ongoing basis. These are important for determining the appropriate costs of goods or services the organization can profit from.

To begin, first, distinguish direct costs and overhead costs. Overhead expenses might include utilities, rent, administrative salaries, and general office expenses. Then, determine a consistent allocation method that represents how resources are used. Afterward, set up overhead allocation in QuickBooks by creating a new expense account named "Overhead Allocation."

Here's how to create a new account in the Chart of Accounts:

1. Navigate to the Gear icon.
2. Select Chart of accounts under Your Company.
3. Click the New button.
4. Enter an account name. Then, choose Expenses for the Account type.
5. Press Save.

Then, create a non-inventory item named "Overhead" and link it to the overhead allocation expense account by following the steps below.

1. Navigate to the Gear icon.
2. Select Products and services under Lists.
3. On the New dropdown, pick Non-inventory item.
4. Enter "Overhead" as the name.
5. Choose the newly created Overhead Allocation account in the Income account dropdown.
6. Press Save and close.

You can then use this item to distribute overhead costs to specific projects. 

It's essential to review this setup periodically to ensure it remains relevant. If necessary, make some adjustments. Additionally, utilize Project Profitability Reports to evaluate the profitability of projects.

To guide you through the process, I'd recommend consulting an accountant for advice tailored to your business needs. If you don't have one, you can utilize our accountant tool to locate a nearby professional.

I'll leave this article for more information on the topic: How To Calculate And Track Overhead Costs.

You might also want to learn how certain rates affect profitability. Here's an article all about it: Pay rates, cost rates, and billable rates in QuickBooks Online.

Come back to this post if you have any other concerns about managing your projects or expenses in QuickBooks, LGierich. We'll be right here for you.

How do you "use this item to distribute overhead costs to specific projects"? 

Thanks for getting back to this thread, LGierich. I can guide you through adding the overhead item to a specific project.

You can utilize the item you've generated to allocate overhead costs by selecting the associating project from the Projects menu:

1. Go to the Projects menu and click the project you need to apply the overhead cost from the list.
2. Choose Expense or any transaction type you want to create from the Add to project dropdown.
   
3. Enter the Payee, Payment account used, Payment method, and Payment Date if necessary.
4. From the Item details section, select the overhead item in the Product/Service column.
5. Enter its Amount and tick Billable if you want to charge this to your customer. Otherwise, leave it unchecked.
6. You can also use the Description column to input the overhead expense details.
7. Double-check everything, and once done, hit Save and close.
   
   
   

Still, it's best to seek assistance from an accountant to ensure you've tracked this type of transaction accordingly in QuickBooks.

I've also added a resource that provides complete insights about overhead expenses: Overhead Costs: Meaning, Types, and Examples. This way, you can confidently handle them moving forward.

We in the Community are here to ensure you can run your business seamlessly in the program. Add a comment below if you have follow-up questions about managing overhead costs or tracking them using your reports in QuickBooks. My team and I are always here for you.