The more your business grows, the more critical it will be for you to leverage accounting tools to grow your business. However, that growth can also make accounting and reporting more difficult. Once your business has multiple departments or product lines, it can be hard to separate the performance of one particular area from the whole. While your business may be profitable, you may have one particular product category that’s a complete flop. By eliminating (or improving) the one category that’s fallen behind, your business as a whole could profit even more.
The overall point is that as your business expands, segmentation becomes more important. Class tracking in QuickBooks is a feature that allows you to group expenses and invoices. You can segment by location, department, or any other way you categorize your business.
What Is Class Tracking In QuickBooks?
Class tracking in QuickBooks is an opt-in feature that allows users to group expenses or invoices by location, department, or any other meaningful segment of your business. According to QuickBooks’ own guide, you can assign a class to many types of transactions, including:
– Sales Orders
– Sales Receipts
– Statement Charges
– Credit Card Charges
– Refund And Credits
– Purchase Orders
As you can see, nearly all of the most common transactions can be assigned a class. And that’s a good thing because it makes it easier to filter by multiple classes, departments, or locations to create reports.
What Are The Benefits Of Class Tracking In QuickBooks?
Class tracking in QuickBooks can help business owners keep a close eye on important segments of their business. Below are a few examples.
Coffee Shop With Multiple Locations
Let’s say that you’re a local coffee shop owner with three different locations. This would be a perfect example of where class tracking could come in handy. You could create three separate classes for each location (i.e. Location 1, Location 2, and Location 3). Then you’d need to be sure to assign a class to each transaction so that, down the road, you could accurately compare the financials of each location.
Sports Retail Store With Multiple Departments
Let’s say that you’re a sports retail store owner. Your store is split up into multiple departments, such as football, basketball, baseball, golf, fishing, and apparel. By assigning a class to each department, you can easily run reports to compare the profit and loss of each department and make department-level adjustments when necessary.
Non-Profit Organization With Multiple Annual Events
Let’s say that you’re the head of a non-profit organization that holds several fundraising and/or outreach events throughout the year. In this example, it may be helpful to be able to compare the financials of each event as a whole. You can do this with class tracking. Simply give each event a separate class name and be sure to assign the appropriate class to each transaction.
How Does Class Tracking In QuickBooks Compare To Other Tools?
It’s easy to confuse class tracking in QuickBooks with a few other categorization tools. Sometimes class tracking will be the tool that you need. While at other times, a different tool may be a better fit. Below, we compare and contrast class tracking in QuickBooks to Types, Inventory Tracking, and Locations.
Classes Vs. Projects
How do you know when to use classes instead of projects inside of QuickBooks? While you can run Profit and Loss Reports for both classifications, projects are typically meant to be used for specific jobs while classes are a way to separate transactions by department or product category. Projects may be a more helpful tool if you have a contracting, remodeling, or consulting business. That way you can compare your income and expenses for each particular job. But, for retail business owners, classes will probably be the better choice.
Classes Tracking Vs. Inventory Tracking
Class tracking isn’t intended to be used for tracking individual products. That’s what inventory tracking is for. To help you understand the difference, think again about our sports store owner example. If our store owner wanted to compare the sales of the golf and fishing departments, he’d need to use classes. However, if he simply wanted to compare the sales performance of two specific types of golf clubs, he would use inventory tracking for this.
Class Tracking Vs. Locations
Class tracking and locations are very similar inside QuickBooks. In fact, you’ll find both features under the same “Categories” tab inside Settings. The main difference between the two is that you can select a different class per line item. However, only one location can be selected for an entire invoice, expense, or other transaction. Locations and classes can also be used in tandem. For instance, if you have multiple retail stores, you could assign each store as a location and each department as a class.
How To Turn On Class Tracking In QuickBooks
As mentioned previously, class tracking is an opt-in feature inside QuickBooks. So you’ll have to turn it on if you’d like to start adding and assigning classes inside your QuickBooks account. Note that this feature is not available in the Online Simple Start edition.
Simply navigate to Settings (the gear icon). Then look on the far left-hand side of the setting panel for the “Your Company” tab. Then select the first option, “Account and Settings.”
On your company’s settings page, you’ll want to navigate to the “Advanced” tab. Then, look for the “Categories” section and tap the “Edit” icon on the right-hand side.
On the Categories edit page, you’ll find a checkbox beside the “Track classes” option. Simply check that box to activate class tracking in QuickBooks.
As seen above, you can also tell QuickBooks to warn you whenever a transaction is created that hasn’t been assigned a class. I would recommend turning this setting on. This will help you to avoid having a lot of Unclassified transactions, which could throw off your P&L or Balance Sheet reports.
How To Add New QuickBooks Classes
To add your first QuickBooks class, you’ll once again begin by clicking on the Settings icon. This time, however, you’ll be looking at the “Lists” tab. Select the first option – “All Lists.”
On the “Lists” page, you’ll see several options such as the chart of accounts, recurring transactions, products and services, and more. Find and select “Classes,” which should be on the right-hand side.
Once you’re on the Classes page, you’ll want to select the green “New” button. Give the new class that you’re creating a name. If this is the first class you’ve ever created, click save and you’re done. Or if you want to nest this new class under another pre-existing class, simply check the “is sub-class” checkbox.
How To Add A Class To An Expense Or Invoice
It’s simple to add a class to an expense or invoice inside QuickBooks. The process is similar for both. For the sake of example, we’ll look at how to add a class to an expense.
To begin, you’ll want to navigate to the big “New” button on the left-hand side of the QuickBooks interface. From there, select “Expenses” under the “Vendors” tab.
If you’ve entered an expense inside QuickBooks before, you’ll notice that a new “Class” column has been added to the “Category Details” section on the far right-hand side. Simply tap inside the “Class” cell to see your full list of classes and to select the appropriate one for this particular transaction.
Once class tracking is turned on, you’ll need to assign a class to each expense and income item. This can get tricky when you have an expense that covers multiple classes. For example, the coffee shop with three locations may run radio ads featuring all three locations. How will that expense be classed? One way to do that would be to split the expense evenly (or by percentage) between the three locations.
How To Filter Reports By Class In QuickBooks
There are multiple reports that can be filtered by class inside QuickBooks. First, you can run a Profit and Loss by Class report. To do so, simply navigate to the Reports tab and search for “Profit and Loss by Class.” or if you’d like to run a “Balance Sheet by Class” report, you can search for that report as well.
When you run a Balance Sheet by Class report, you may find that the report creates an “Unidentified Classes” column. This most likely means that you forgot to assign a class to some transactions. You can double-click the transactions that don’t have a class and manually assign them before clicking “Save and Close.”
In addition to being able to filter P&L and balance sheets by class, QuickBooks can also sort Unpaid Bills Details, AR Aging Details, Accounts Receivable, and credit cards by class. To learn more about the more advanced class filtering and sorting options in QuickBooks, check out their how-to guide.
Wrapping It Up
Class tracking in QuickBooks won’t be necessary for every small business owner. But if you have multiple departments or locations, you might want to consider using this advanced QuickBooks tool. Once class tracking in QuickBooks is turned on, it can help you make informed decisions to improve the efficiency and profitability of your business.