Lesson 11-- Cost Categories

Every business needs a convenient way to track expenses and income (often called job costing or job cost accounting). The Goldenseal job costing software includes a flexible system of cost categories to do that.

In this lesson you'll create a new cost category, and add it to a category system.

HINT: Goldenseal also includes traditional expense and revenue accounts. However you will probably find that you don't need to use them directly, since cost categories are a more convenient and accurate way to organize your expenses.

How Cost Categories Will Help You

A system of cost categories will do all of the following for you:

Track and identify expenses.
Organize the items in estimates.
Give you a quick way to locate the items you buy and sell, or the services you provide.
Speed up data entry for purchases, estimates and sales.
Calculate payroll taxes or insurance that are based on the type of work done by the employee.
Identify completion amounts for progress payment billing.
Provide convenient groupings for job cost reports.

Category Setup

Goldenseal includes Cost Categories, which are a simple list that you can use to classify expenses.

It also includes optional category systems, which group categories into main categories and subcategories.

Use category systems in any of the following cases:

If you use a different set of cost categories for different types of costs (for example, for the items you sell and for overhead expenses).
If you want to split your cost categories into subcategories.
If you pay worker's compensation or payroll taxes that are based on the type of work that your employees do.

To set up Goldenseal so it uses category systems, follow these steps:

Choose Preferences from the Options menu, then choose Data Entry from the submenu.
Turn on the Use Category Systems checkbox. then click OK.

NOTE: If you turn off the Use Category Systems checkbox, Goldenseal will not use category systems. In that case you can always use any cost category, and subcategories will never be used.

If you have a construction or service business, you'll probably need at least two different category systems-- one for the work you do, and one for your general overhead expenses.

For other types of business, one category system may be sufficient. Whether you use subcategories is a matter of personal preference (they take more data entry time, but give you more useful cost information).

HINT: Some people set up two category systems-- one that includes subcategories and one that doesn't. Then you can use different levels of job cost detail for different projects.

If you aren't sure which categories to use, start with a simple system that includes whatever seems obvious at first. You can always add new categories as you think of them later on.

HINT: The Starter Files include pre-set category systems for several business types. You may be able to use one of them as a starting point, when you set up a cost category system for your company.

Cost Categories

You'll use cost categories in most parts of Goldenseal-- they are a central part of our job cost accounting software.

There is a category field in all expense transactions (see Lessons 33 and 35). If you use a category or item breakdown, each breakdown item has a category (see Lesson 34).

Allowances, bids, change orders and estimates are also itemized by category (see Lessons 3 and 6), as are direct bank purchases and sales that use a category or item breakdown.

Cost Items and Assemblies also include a cost category (see Lessons 13 and 14). When you use them in an Item breakdown, you won't have to look through hundreds or thousands of items-- you'll only see the items that belong to one category.

The Sample Company file already includes a set of cost categories for a construction company. To add a new cost category, follow these steps:

Choose Category Setup from the Costs menu, then choose Cost Categories from the submenu.
You'll see a list of cost categories. Click the New button.
Type in a name for the new category. You can also enter a longer Report Name which will appear in report breakdowns.
Use the Location field to determine where this item will appear in Category Systems. For this item, enter Subcategory Only.
You don't need to use a reference number, but you can enter one if you prefer to see numerical codes with your cost categories.
If this category is not billable in Time and Materials work, turn off the Time & Materials Billable checkbox.
The Category System table shows any category systems that use this category. Because this is a new item, no items are shown yet.
When you have finished entering information for the new cost category, click OK.

Category Systems

Category systems allow you to create a 'two layer' system of cost categories with main categories, and smaller subcategories.

To add a new category to a category system, follow these steps:

Choose Category Setup from the Costs menu, then choose Category Systems from the submenu. You'll see a list of category systems.
Choose the Full CSI item, and click the Edit button. NOTE: If the Category Systems command is disabled, turn on the Use Category Systems option first.
In the upper (category) table, you'll see a listing of the categories that are already used in this system.
Scroll through the category list, and click in the row for the category where you'd like to add the new item. In the lower table, Goldenseal shows the subcategories for that category.
Scroll to the bottom of the lower (subcategory) table, and click anywhere in the last row.
Press the Return key to add a new row.
Use the clairvoyant field to enter the category that you created earlier in this lesson.
Use the remaining columns only if you pay payroll taxes or insurance that is based on the category of work that was done.
Repeat steps 4 to 8 for any other items you'd like to add. You can also add new main categories by clicking in the last category row, then pressing the Return key to add a new row.
1When you are finished making changes, click OK.

Creating a New Category System

To create a completely new category system, follow these steps:

Choose Category Setup from the Costs menu, then choose Categories from the submenu.
Check the categories that are already available. If you want to add more, click the New button, and add as many categories as you need (see pages 63-64). When you are finished, click the Close button.
Choose Category Setup from the Costs menu, then choose Category Systems from the submenu.
Click the New button.
Click the first row of the Category (upper) table.
Use the clairvoyant field to enter a category into the first column. Fill in the other columns (check the Reference Manual for details).
If you want to include subcategories, click in the first row of the subcategory (lower) table. Otherwise skip to step 11.
Use the clairvoyant field to enter a subcategory into the first column. Enter tax information into the other two columns.
Press the Return key to enter a new row.
Repeat steps 8 and 9 until you have entered all the subcategories for this category.
Click in the last row of the category (top) table, and press the Return key to enter a new category row.
Repeat steps 6 to 11 until you have entered all the desired categories.

Using Category Systems

Assign a category system to each project account, overhead account, cost account, cost item, job type, sales branch and estimate.

Each time you enter an expense transaction, the Category field will show a list of categories from the category system that was assigned to the supplier account, job account or sales branch (the choice depends on which makes most sense for that type of transaction).

HINT: If no category system is selected, you will see all categories in the Category field. The Subcategory field shows subcategories only if the current category system includes subcategories.

For progress payment billing, you can use the category system from the estimate to track percentage of completion.

For any project, use the Job Costs command to see a cost breakdown by category. You can also use category breakdowns in many reports (see Lesson 20).

Switching Category Systems

To enter a category from a different category system, follow these steps:

Choose Category Setup from the Costs menu, then choose Switch System from the submenu.
Select a different category system, then click OK.

Cost Classes

You can group cost categories into larger classes. To enter a new cost class, follow these steps:

Choose Category Setup from the Costs menu, then choose Cost Classes from the submenu. NOTE: If the Cost Classes command is disabled, turn on the Use Category Systems option).
Click the New button.
Enter a brief name for the cost class, and any comments you have about it.
When you are finished, click OK.

To assign a cost category to a cost class, use a Category System (see the previous section).

When you make job cost reports, you have the option to see a breakdown by cost class, or by cost class and category.

More Goldenseal Groups

Goldenseal provides several additional ways to mark business transactions and then categorize them in reports:

Company Divisions-- You can assign each asset and liability account to a company division, and then view assets and liabilities with a breakdown by company division.
Cost Account Types-- You can assign each cost account to a cost type, and then see reports broken down by cost type. Cost types are a convenient way to group cost accounts, even if they are a mixture of equipment, employee, material, subcontractor and other cost accounts.
Cost Locations-- Cost locations are a separate way to identify expenses. There is more about them in the next Lesson.
Expense and Revenue Accounts-- Goldenseal includes 'classic' accounts that automatically calculate balance sheet totals. You can create additional utility accounts if you prefer 'classic' accounting.
Job Types-- You can assign each job account to a job type, and then view revenue reports with a breakdown by job type.
Sales Branches-- You can assign each sales transaction to a sales branch, and view sales reports with a breakdown by sales branch.

Finishing Up

This Lesson has covered cost categories. It may take you a while to set up a full system of categories for your business, but you only have to do it once!

You might want to take a break now and consider how many group words there are, and how many of them we must use in the Goldenseal job cost accounting software-- category, list, type, class, assembly, phase, gaggle, covey, flock... Aaaaaagh.

Wouldn't you like to be part of a group/class/type yourself? The Turtle Creek Software Users Chic Hat User Group might be just the thing. Send us a picture of your most chic hat, and we'll post it on our bulletin board for the enjoyment of all. We'll also send you a handsome laser-printed certificate of appreciation.

In fact if you send us the chic hat itself, you can be sure it will be worn with great pride by the bronze gargoyle in our employee washroom.