In QuickBooks software there are multiple item types you can create. Two of the items, Non-Inventory Part and Service, have an option labeled “This item is used in assemblies or is purchased for a specific customer:job”. This check box can be a little confusing to people who are setting up QuickBooks.
When you first create a service or non-inventory item, the default setting only shows you one Account box. The account you select here will be used whenever this item is used. If you select an income account for the item it will show as positive income when you enter the invoice or sales receipt with that item. It will then show as a negative income if you enter a bill with that item. Alternatively, if you select an expense account for the item, invoices will show as negative expense and bills will show as positive expense.
This function can be useful if you only care about seeing the net profitability. This is commonly used in businesses that incur shipping expenses for sending items to customers, but also charge the customer a shipping charge. If the net effect is positive income, then you are charging more for shipping than you are spending and you may want to think about lowering your shipping charge to make you more competitive. If you are at a negative income (or positive expense), you may need to raise your shipping rates to better reflect what it costs the company to ship product.
There are some instances, though, where you do not want to just see a net effect. If your business hires outside vendors, it is typical to track the expense separate from your income. While you could create two different items (Consulting Service and Consulting Expense), QuickBooks has the ability to split an item into separate accounts. The check box is what controls this behavior. When you select that the item is used in assemblies or is purchased for a specific customer, QuickBooks will allow you to select an income account as well as an expense account. When you use this item on an invoice or sales receipt, QuickBooks software uses the Income account, but if you use the exact same item on a bill, QuickBooks will use the expense account instead.
This is a powerful utility that has great benefit for a business owner to better see their expenses and income separated out, while still maintaining the same net numbers for accounting and taxes.