Using Classes in QuickBooks / Class Tracking in QuickBooks
THE POWER OF USING CLASSES IN QUICKBOOKS!
by Peggy Seville, Certified Quickbooks ProAdvisor
November 3, 2017
Class Tracking is an under-utilized feature of Quickbooks that EVERY business could use to better understand the performance of different areas within their business. If you think your business doesn’t have different areas, think carefully. Even simple small businesses have different business activities which generate their own income and expenses. Have a look below at some examples of Quickbooks Classes for different business types.
Why Do I Need to Understand Classes in Quickbooks?
It’s important to focus on the areas of your business that are most profitable. Many business owners say “I already know what areas are profitable and which are not. It’s all in my head!” As your business grows and the demands on your time are greater, keeping it ‘all in your head’ is just not possible. You might also be surprised at the results you find.
What are Quickbooks Classes?
Classes are used when you have both income and expenses in different areas of your business, and you want to see the Net Profit in each area. They act like separate but related businesses or profit centers. How much money did that area of my business actually make? How much would it make if it was a separate business? Am I losing money in any of them?
Classes are unique to each type of business. They can be: Divisions, Events, Projects, Properties, Locations, Product Lines, Programs and more.
Don’t forget about adding a Class named ‘Overhead’ or ‘Administration’ for common expenses. This might be the most important class of all. More on this later.
Examples of Different Types of Businesses and their Recommended Classes
This report provides significantly more information than just looking at a Profit & Loss by Total only. Combined with Job Costing, Class Tracking in Quickbooks will help you manage your business better.
How are Classes in Quickbooks Used?
A Quickbooks Class is posted to every transaction and every line on the transaction - whether it’s an invoice, a bill, cheque, or journal entry. When you turn on the Class Tracking feature in your settings, make sure you select the option to be warned if you try to save a transaction without a class.
Does this take longer to enter transactions? It’s one extra field on each line. You can click your mouse or tab over to it. Then type the first letter of the Class and enter or tab again. That’s it. It only takes a second. One extra second equals a lot more meaningful information to help you manage your business better.
If an expense is for more than one Class, does it take longer to break out the transaction into multiple lines? Yes, ok it’s a little longer in Quickbooks Desktop. Quickbooks Online has a great feature to split out recurring expenses by percentage using ‘Bank Rules’. It’s still worth the effort!
If you have missed entering a Class on a transaction - despite being warned - don’t worry. If you look at the Profit & Loss by Class report, they will show as ‘Uncategorized’. You can click on them to add the Class until there are no more uncategorized transactions.
Applying Overhead or Admin Expenses to Quickbooks Classes
This might be the most important step that often gets missed. You may think you’re making money in a certain area of your business until you apply your overhead costs and get a big surprise. You might find out that some Classes are supporting other Classes. Maybe your business would be better off if you cut out that area of your business!
For more information, read ‘How to Allocate Overhead Expenses to Other Classes in Quickbooks’.
Using Classes in Quickbooks to track the different areas of your business enables you to see more meaningful information about your business. It will allow you to focus on your most profitable areas, make timely adjustments during the year, and identify parts of your business which are not profitable and should be dropped.
Need help sorting out your Classes and Accounts? No problem, we’re here to help. We can review your business needs, identify profit centres, and help sort out your Account structure. Click here for more information.
What is the Difference Between Accounts and Classes in Quickbooks?
Accounts and Classes have the same function whether you are using Quickbooks Online, Quickbooks Pro, Quickbooks Premier, or Quickbooks Enterprise. Accounts are used to capture the different types of income and expenses within your Classes. They can really simplify your account structure. Many businesses use too many accounts. For example, a construction business might set up some accounts like this:
• Job Supplies - Commercial
• Job Supplies - Residential
• Subcontractor Expenses - Commercial
• Subcontractor Expenses - Residential
There are double the accounts needed and financial reports have less meaning. This is unnecessary. I’ve seen some very long, unwieldy charts of accounts over the years that needed to be streamlined. If Classes are used, there are only two accounts:
• Job Supplies
• Subcontractor Expenses
All the expenses are included in these two accounts but they are broken out into Commercial and Residential by the additional Class field. Have a look at the example below. This is how the Profit & Loss appears when it is broken out by Class.
Example of a Profit & Loss Statement Broken out by Class