Using Classes to Track Segments of your Business
QuickBooks classes give you a way to categorize and track account balances by department, business office or location, separate properties you own, or any other meaningful breakdown of your business. Many business owners have certain segments of their business that they want to keep a close eye on. For example, if you sell different product lines or products from more than one manufacturer, you can use classes to track the proportion of your income and expenses related to those different product lines. By using the class tracking feature, you can define these segments and track their associated account balances on invoices, bills, and other documentsregardless of which types of customers are involved.
Businesses with different departments or locations can use classes to report account balances for each department. For example, if you had a restaurant with three locations, you might create an Uptown, a Midtown, and a Downtown class for tracking account balances by location. At the end of an accounting period, the restaurant could then create separate reports for each location.
Examples of Classes by Business:
- A landscaping business with a Maintenance and Installation division that would like to track the profitability of each division separately.
- A Non-Profit that needs to track income and expenses by grant, event or project.
- A business with 2 or more locations, who uses the same company file to track profitability, A/R, etc.
- Property management, to track the income and expenses for each property
To Turn on Class Tracking:
1. Go to the Edit menu and click Preferences.
2. In the Preferences window, click Accounting in the list on the left.
3. Click the Company Preferences tab.
4. Select the Use class tracking checkbox.
5. (Optional) Once you turn on class tracking, you can also select to have
QuickBooks prompt you to assign a class if you forgot to enter one while
entering in a transaction.
6.Click the OK button to save the preference and close the window.
Note: Turning on this feature will not in any way affect your current reporting or previous transactions. It will simply add a column to your transactions that will allow you to assign a class. In order to assign a class for each line item on sales transactions, you may need to edit your templates to show this column. If you run payroll in QuickBooks, you’ll also need to set the preference per paycheck or per earnings item under the “Payroll and Employees” company preferences.
General Tips for Using Classes:
* Set up classes on the basis of the type of reporting that you want to do, and consider how you want to see your business segmented on reports.
* Set up a class such as “other” or “overhead” that you can use to deliberately classify transactions that don’t fit into any specific class that you’ve defined, such as overhead expenses.
* Use classes for one purpose only. For example, don’t create classes for tracking office locations in addition to tracking partners.
* Consistently enter the class information on your forms and registers to ensure that this information is valid and useful.
To Setup Classes:
You can create classes when you set up your QuickBooks company file or at any time after setup. To create classes, choose ListsàClass List. When the class list window opens, press Ctrl+N to open the new class window, and then enter a name for the class. Now you will be able to enter a class when you are creating invoices, recording bills, making journal entries etc.
Note: Once you setup your classes, you should assign a class to every posting transaction. Each time you enter a sale in QuickBooks or pay a bill, you should enter the class associated with that sale or expense, even if the class is “Other” or “Overhead” as we discussed above. If you need to fit everything into a specific class, you always have the option of splitting out things like overhead expenses and assigning a class per line item.
Class Tracking Reports:
Profit & Loss by Class Report – shows the profit and loss of each aspect of your business that you track by class in QuickBooks.
Profit & Loss Unclassified Report – shows the profit and loss from all transactions that are not classified. You can use this report to identify unclassified transactions in your company file.
Balance Sheet by Class Report – In QuickBooks versions 2011 or later, you can also run a Balance Sheet by Class report. However, this report is an advanced report and you may experience some unexpected results due to unsupported transactions that require a strong background in accounting and QuickBooks to fix. If you really need a Balance Sheet by Class report, contact your accountant for assistance.
Note: The default date range for P&L Reports is always the fiscal-year-to-date. However, you can change the period you want displayed from the Date Entered/Last Modified drop down list or by entering a new date in the From and To date range.
Profit & Loss by Class Report:
The Profit & Loss by Class report shows how much you’re making or losing within each segment of your business, as defined by the QuickBooks classes you have set up. The report includes subtotals for each type of income or expense so you can see where money is coming in and where you are spending it.
How do I create this report? From the QuickBooks main menu, Choose Reports > Company & Financial > Profit & Loss by Class.
To Create a P&L Comparison Report by Class (for a Previous Period/Previous Year)
1. Click Customize Report at the top of the report.
2. Click Report Dates drop-down list and choose the date range you want to compare.
3. Select the Previous Period checkbox, the Previous Year checkbox, or both.
4. (Optional) For each comparison, select the $ Change checkbox, % Change checkbox, or both. When you select these checkboxes, the report displays the dollar change or percentage change from the previous period or year.
5. Click OK.
Note: Depending on the reporting purpose and number of classes, instead of running the Profit and Loss by Class, you may prefer to create a P&L Report, filter it by the class you want to view, and memorize it. Either way, it’s important to run the Profit & Loss Unclassified Report first to make sure all of your transactions are assigned to a class before creating your reports.