Not every item an enterprise invoices or pays for has stock. Examples include consulting, shipping, rent, and maintenance.
When these items are defined as stock cards, records that constantly drop into the negative and can never be counted are created, causing reports to lose their meaning.
In this article, we explained how to define service and expense cards, their differences from stock cards, cost center integration, and reporting.
Table of Contents
Difference from the stock card
The most fundamental characteristic of service and expense items is that they do not have a quantity-based balance.
In a stock card, inbound and outbound movements create a balance, and this balance is verified through physical inventory counts.
For a service item, such a balance is meaningless; sold consulting hours do not need to be deducted from stock.
Therefore, a separate card type must be used; forcing the use of a stock card permanently corrupts reports.
Definitions are managed in the service and expense module.
What should the card contain?
A service card is simpler compared to a stock card; however, certain fields must definitely be included.
Code and description are fundamental areas. It is important that the description appears clearly on the invoice.
A unit definition is also required; measures such as hours, days, trips, or pieces are used.
The tax rate must be linked to the card; manual selection on every invoice is a source of error.
A default price can also be defined; this speeds up quote and invoice preparation.
Grouping structure
When service and expense items are grouped, reporting becomes meaningful.
Groups should be designed according to the breakdown you want to see in the report. Reporting needs determine the group structure.
Typical expense groups are: personnel, rent, energy, transportation, consultancy, and maintenance.
The number of groups should be kept moderate; too many groups make the report unreadable.
Ensuring that groups are compatible with the chart of accounts simplifies period-end work.
VAT and tax definitions
Tax rates on service items can be more diverse than on products and require attention.
Linking the rate to the card prevents re-selection on every invoice and reduces the risk of error.
An additional definition is required for services subject to withholding tax. These items must be marked separately.
Services within the scope of exemption must also be defined separately; they require a description on the document.
Tax practices are subject to legislation; determine the rates and exemptions together with your financial advisor.
Cost center association
The true value of expense items emerges when it is known where they belong.
A cost center links the expense to a department, branch, or project.
A default center can be defined for certain items; rent expenses are usually posted to the same center.
An expense can be distributed among multiple centers; this is necessary for shared expenses.
We covered the details in the cost center-based tracking article.
Income and expense distinction
Some items are strictly expenses, some are strictly revenues, and some can be both.
Shipping is a good example of this; it is both paid and reflected on the customer.
For such items, tracking the purchase and sales sides separately makes the true cost visible.
Items that are strictly expenses should be prevented from appearing on sales documents; this avoids wrong selections.
Specifying the area of use on the card also keeps the lists clutter-free.
Pricing
Service pricing works with a different logic than product pricing.
Cost is usually time-based and not directly visible. Therefore, price is determined based on the market and value.
Customer-based price differences are also common; special rates can be applied to contracted customers.
Price lists are the most organized way to manage these differences.
We covered list management in the price list management article.
Reporting
Correctly defined service and expense cards yield several valuable reports.
Expense group-based distribution is the most fundamental report and the starting point of budget planning.
Period-over-period comparison shows upward trends. Unexpected increases are noticed early.
Cost center-based distribution, on the other hand, is the foundation of responsibility accounting.
Reporting service revenues separately from product revenues also clarifies profitability analysis.
Setup order
During setup, the group structure must be determined first; cards are then placed into these groups.
The group structure should be designed backward from the reports you want to see.
Next, existing invoices and expenses are reviewed to determine which items are actually used.
Cards should not be created for unused items; the cleaner the list, the easier the correct selection.
In the final step, tax rates and default cost centers are defined.
Points to consider
The most common mistake is opening too many similar cards. Items that do not require distinction should be consolidated into a single card.
The second mistake is using a general-purpose miscellaneous expense card. Over time, this card absorbs everything and the report loses its value.
Leaving the cost center blank also prevents analysis; it is recommended to make it a mandatory field.
It is also important that invoice descriptions are clear; the customer must see what they are paying for.
We explained the invoice issuing workflow in the service invoice creation article.
Frequently asked questions
Can a service item not be created as a stock card?
It can be created, but it is not recommended; records that constantly drop into negative values and cannot be counted disrupt stock reports.
How many cards is it appropriate to define?
As many as your reporting needs require; there is no need to open separate cards for items you do not want to see separately.
Can the cost center be made mandatory?
It can be and is recommended; records left blank are almost never corrected afterwards.
Is a separate definition required for periodic services?
The same card can be used; for recurring billing, check out the subscription invoices article.
Service and expense definitions are a step that is often rushed during setup, but determines the quality of reports for a long time.
Design backwards from the reports where you want to see the group structure; changing it later affects past data.
Also avoid the general-purpose miscellaneous expense card; over time, this card absorbs everything and makes analysis impossible.
Make the cost center a mandatory field; records left blank are almost never corrected afterwards.
Bind tax rates to the card as well; manual selection on every invoice is the most frequent source of errors.
By consulting with the EQLEM teamYou can set up your definition structure.