Short answer: very important.
It’s the cornerstone of a good sync with an accounting system. If you were integrating “liked” Facebook photos with Dropbox, then it’s not important. But for businesses trying to streamline their process, integrating to an accounting system is key. And so items are key.
Accounting systems like QuickBooks rely on the General Ledger (GL) to track the financial life of a business. Revenues generated through sales and marketing activities are captured in transactions like Sales Orders and Invoices, and those transactions contain Items. For every Item you have set up in QuickBooks, you’re made to pick an Income Account, which is an Account on the General Ledger. What this boils down to then, is that sales you make hit the General Ledger, so specific accounts defined per item.
GL Accounts are assigned to an item to track revenue.
So what’s an item? It’s a common mistake to think that your business is special and therefore doesn’t need to use items. Some businesses track their revenues directly on the GL, bypassing items entirely. This can work very well, and is a valid way to track your business. However, items let you translate your accounting life to your sales life. When you sell items, the rest of the world can understand what you sold.
Items can take many forms. Here are a few versions of items commonly found in most small businesses:
All an item really is, is a unit of something sold. So it’s important to decide how you organize your item data, so that everyone is clear what the business sells or buys. And it becomes more important still when integrating your accounting app with outside systems. There needs to be a common handoff to alleviate the “square peg, round hole” problem of trying to get two unrelated systems to talk to each other, and items are a perfect handoff point.
We’ll undoubtedly talk about items in forthcoming posts, but this should be a good primer to help you think about your item data strategy going forward. As always, comment below with your thoughts and questions, or hit us up on social media.