Sunday, September 27, 2009

QuickBooks: Using Transaction Classes

A client asked: What are Classes and how are they used in QuickBooks?

You can use classes in QuickBooks to segment your financial statements and to filter many of your QuickBooks summary reports and detail reports for specific segments of your business. However, certain entries may not apply to any of the classes on the list or you may need to allocate the entry across multiple classes.

For example, if you use QuickBooks to track locations, entries for company-wide expenses like insurance policies and advertising do not apply to a specific location. You have two options when working with this type of entry:

1. You can create a class called “Overhead” and you can post the entry to that class.

2. You can split the detail of the transaction so that the single transaction (e.g. check, bill or invoice) applies to multiple classes.

Whatever method you use, the bottom line is to always use a class on each and every transaction. If you do not include a class, you will:

* Create an Unclassified column on the Profit & Loss by Class report. Doing this does not allow you to track transactions that should have posted to a specific class but where the user failed to enter the class.

If you use a Class called “Overhead,” you can use the “Unclassified” column to track transactions that are missing a class.

* Receive a warning message that the transaction does not include a class. (This message will show only if the “Prompt to Assign Class” box is check in the Accounting Company Preferences.)

If you exclude the class on selected posts only (e.g. posts that are overhead or posts to Balance Sheet accounts), the benefit of this warning is diminished. Over time, users will ignore the message.

For this reason it is best to use the Overhead Class on posts to Balance Sheet accounts, even though QuickBooks does not allow you to filter the Balance Sheet by Class.