What Are Classes?

When you use classes in QuickBooks, in addition to item or account, you can also assign a class to each transaction.  Then, you can run a Profit and Loss report by class, and even filter reports like Accounts Receivable and Accounts Payable reports by class.

Examples

-          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 Sole-Proprietor who uses one account for both business and personal expenses (I which I recommend against, but some insist on doing)

-          A business with 2 or more locations, who uses the same company file to track the profitability (and/or A/R, etc.)

-          Property management, to track the income and expenses for each property

Class Tracking Best Practices

Be careful not to duplicate the Chart of Accounts with classes – What I caution against, and I’ve noticed people tend to do, is the practice of using classes as a duplicate to the Chart of Accounts.  Your classes should be completely different from your COA.  I see this mistake happen most often in businesses that use classes to track projects or events.  They aren’t sure where to track expenses that don’t apply to a project or event, and feel the need to assign something meaningful.  In most cases, I recommend assigning a class to every transaction, but it’s ok to lump many into a generic class.  I’ll talk about this next.

Assign a class to every posting transaction – I recommend assigning a class to every posting transaction, because otherwise, it will be difficult to tell if you have forgotten to assign a class to something important.  What I usually do is have a class called “Overhead” or “Project Allocation” for transactions that do not apply to what I am specifically tracking.  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.

Use classes on “posting” transactions – Some people are confused about which transactions they need to assign a class to.  Notice, I recommend assigning a class to every “posting” transaction.  Assigning a class to non-posting transactions doesn’t hurt anything, but isn’t necessary.  For instance, when you use an invoice to bill your customer for products or services, the invoice is the posting transaction, and you need to assign a class to the invoice and/or the line item on the invoice.  The related payment receipt and the deposit are not posting transactions.  If you use the deposit form directly to post your income, without an invoice or sales receipt, in that case, the deposit IS the posting transaction and you need to assign a class.  It’s the same with bills vs. checks.

Run a Profit and Loss Unclassified report – 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 by the class, and for each one, memorize it.  It’s important either way, assuming you assign a class to every posting transaction as I recommend, to make sure all of your transactions are assigned to a class before creating your reports.  It’s easy to miss some.

Classes can be useful for workarounds – I have also used classes in several workaround scenarios.  It’s something to keep in mind if you should need another “tier” of reporting in addition to account or item.  For instance, I use classes to track pre-paid and unearned income for events.  I have just one liability account called “Unearned Event Income”, yet my client is collecting unearned revenue for several projects at once.  I assign each transaction a class, and then create a custom transaction detail totaled by class so that I can move the unearned revenue to income when the event is over and the income has been earned.  I’ve also used classes to get vendor names on time and material billing to show up for contractors by setting up vendors as classes, assigning the vendor name as the class on the bill entry and editing my template so that the “class” (vendor name) will show on the customer’s invoice.

Balance Sheet by Class – In QuickBooks versions 2011 or later, you can also run a Balance Sheet by Class report.  It’s definitely quirky – QuickBooks says it is an “advanced report” and that you may experience “some unexpected results” that require a strong background in accounting and QuickBooks to fix.  An example of some “unsupported transactions” is: Journal entries with unbalanced classes, Paychecks allocated to multiple classes, Payroll liability payments and Sales Tax payments.  If you really need a Balance Sheet by Class report, I recommend studying QuickBooks help – search “balance sheet by class” to learn more.

Turning on Class Tracking

Turning on the class tracking feature in QuickBooks is easy.  From the Gray menu bar, click Edit – then Preferences – then click Accounting from the menu, the Company Preferences tab, click the box next to “use class tracking”.  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.

Assigning Classes to Historical Transactions

The good news is – if you have the Premier Edition of QuickBooks (2011 or 2012), and have it installed (or re-install it) as the Accountant’s version, you can quickly re-classify your transactions in a spreadsheet type format using the Accountant Center.  This could save you a significant amount of time, and I would say is possibly worth purchasing the program if you are really going to re-classify a lot of transactions.   When assigning classes to historical transactions that have already been reconciled, be especially careful not to inadvertently change anything else about the transaction, aside from adding the class.

Although I rarely use it, I am very grateful for the class tracking feature in QuickBooks.  I hope you find this information helful in your decision to use classes for your business, and in your understanding of how it works.

Penny Lane

Answer Site #1: Intuit Live Community

This is amazingly simple.  Visit www.community.intuit.com, sign up for an account, and click the “Help with Intuit Products” tab.  You can also access this site directly from most versions of QuickBooks from the help menu.   Below, you can see the Live Community site menu from inside QuickBooks.  Just type in your Question – where it says “Type your question here”, sit back, and wait for answers.  It’s that simple.   Here’s a link to a question I answered for someone recently: http://community.intuit.com/posts/checking-account-balances-on-balance-sheet?cid=e_replysubscription_v4

Answer Site #2: QuickBooks Users Forum

Visit  www.quickbooksusers.com and click “Forums” from the menu bar.  Sign up for an account, and ask away!

Answer Site #3 Linked In

YES – Linked In!  This business networking site is a great place to get answers to just about anything, and QuickBooks is no exception.  Visit www.linkedin.com and sign up for an account.  Then, join some QuickBooks Groups – there are 2 QuickBooks Tips and Tricks Groups and both are fantastic.   You’ll get your questions answered and lots of great advice.

Important answer site Tips and Tricks:

1. Technical or very sophisticated questions are best posed on the Intuit Community Site.  You can post both technical and general questions on the community site, but technical questions like print errors, error messages, and things like that are best posted on the Intuit Community Site where you’ll have access to the highest number of experts.

2. Be sure your question is clear and specific.  The best way to insure your question is answered is to make it easy.  A Question like “can’t email invoices” is way too vague.  In order to answer a question like this, we need more information like, what version are you using and whether or not you are getting an error message.

3. Search the “knowledge base”.  On the Community site and QuickBooksUsers forums, you can search the questions others have already asked, and my get your question answered immediately.

4.  Try QuickBooks Help.  I think Intuit may have confused some people with their new Live Community in-product feature.  It defaults to the Live Community, while in most cases the in-product help feature is the easiest way to get your simple questions answered.  I learned a lot about using QuickBooks just from the help menu, which includes in-product tutorials.  To access the in-product help menu, instead of Live Community, click the Help tab and then click search.  You can then enter  a search term like “returned check” .

Method 1 – You can enter the net amount of the paychecks and tax payments into your bank account as the transactions happen and post them directly to Payroll Expenses.  That’s the simplest, but not the most accurate accounting-wise. The reason being, you are not necessarily posting the payroll tax expenses and liabilities in the correct period.  You also will be challenged to separate out the employer payroll tax expense portion if you wish to (because the tax payments are made up of both employer tax expenses and employee withholding).

Method 2 – You can make a journal entry that will book the paychecks as well as the liabilities with the report from the payroll service when the payroll is processed.  When you are using an outside service, none of the information appears in the payroll system in QuickBooks.  You’ll need the payroll service to direct you or make your payroll tax payments for you.  The payday journal entry would look something like this:

Debit Payroll Expenses 1500
Credit Bank account 632 (net paycheck 1)
Credit Bank account 426 (net paycheck 2)
Credit Payroll Liabilities 442

When tax payments are made, you post them as a check from the bank to the liability account.

Method 3 – Enter the paychecks into the register of the account, and in the split lines record something like this:
Paycheck 1 -
Payroll Expense 800 (includes the employee gross pay AND employer accrued tax liability for that paycheck)
Payroll Liability -168 (that’s a negative, resulting in a net check of 632)

The paycheck method entry is basically what you get when you are able to import from payroll services. I like the paycheck entry method, but it’s a little more work (if you don’t download) and I have found that it’s tricky to glean this information from the payroll reports that come from most payroll services.

I prefer Intuit’s online payroll system, which not only downloads into QuickBooks but with online access, makes it really easy to pay the liabilities and file forms electronically. Other benefits include sharing responsabilities with your payroll service (if you go through a 3^rd party, like an accounting service), free direct deposit and employee access to their own paycheck and W-2 records.  We offer Intuit’s online payroll, with several levels of service with complete support from us.  You can find more information at http://www.nevadacountybiz.com/options-and-pricing/

The first thing you must understand is that when you use inventory items in QuickBooks, you must purchase the item on a bill or check in QuickBooks from the vendor in order to receive the items and populate the inventory in QuickBooks.  Inventory adjustments are for adjusting discrepancies, not for regularly populating the inventory.

When you purchase inventory, the cost of it is recorded in the Inventory Asset account.  When the item is sold to a customer, a cost of goods sold is created and the inventroy asset amount is reduced.

If your cost of goods sold is over-stated, a good place to start is to drill down on your cost of goods sold from the Profit and Loss report.  Carefully review the items that were sold,  and loook for items that are posting a cost above what it should be.  You can also run a report on Profitability by product or sales by item and notice any items that appear to cost more than what they are being sold by.

Many people are not clear on how QuickBooks handles inventory and items and may make a mistake setting up their items as a result.  Here are 2 scenarios I have noticed:

Jim purchases rubber tubing from his vendor in a roll of 500 feet and sells it by the foot.  He sets up the item and enters the cost as $500 – the cost for the entire roll – he enters the sales price as $5 – the price he sells it to the customer per foot.  Every time Jim sells one foot for $5, a cost is recorded in the cost of goods sold account for $500.  Can you see the problem?  To rectify this, you must keep in mind to always set up the costs and unit measures for items in their smallest unit measure.  The cost here should have been entered in the same denomination as the sales- by the foot $1.  In order to create purchase orders and such by the roll – you can use the multiple unit measure feature which allows you to specifiy – I purchase this in a 500′ roll and sell it by the foot.  (you need Premier Edition I beleive for this feature) However, the item itself is still set up in the smallest unit measure – by the foot as far as cost is concerned.

Now – here is the problem that sometimes happens with multiple unit measure: The multiple unit measure is set up in reverse.  I admit, the multiple unit measure concept is a little tricky.  I once had a client set up a multiple unit measure that caused a $50000 over-statement on one sale for the cost of goods sold!  That happened because he purchased a product in Kilos and sold it in drams.  Well, there are over 500 drams in a kilo and instead of setting up the unit measure as 500 drams in a kilo, it was accidentally set up as 500 kilos in a dram.  So, for each dram that was sold, the cost of 500 kilos was recorded!

Also, keep in mind that QuickBooks uses the Average cost method of calculating cost of goods sold.  So, if you find an item that has been in use that had an incorrect cost, you must discontinue using that item and set up a completely new one.  Otherwise, it will take forever for the cost of that item to balance to its original.

I recommend anyone using inventory in QuickBooks who is not an advanced user with accounting training consult with a Pro-Advisor who is experienced with inventory management in QuickBooks when setting up the system and for periodic review.

While enjoying your lunch, I’ll teach you to:

• Save money by avoiding fines and penalties
• Out-smart embezzelement and sloppy bookkeeping
• Feel confident about your business’ finances

Tuesday, June 21st, 2011

Noon to 1:30

at: Baird Investment Group, 360 Sierra College Dr #200, Grass Valley, CA

RSVP by contacting Ruth Schwartz at 530-288-0180 ruth@tabgoldcountry.com or sign up at tabgoldcountry.com

Top 10 Reasons Employers Get Sued

 It’s amazing how easy it is to accidentally make changes to your prior year’s data, and it’s important that you don’t.   The exception is, of course, any adjustments provided by your tax preparer.  In fact, always ask if there are adjustments you should make to your books after your tax return is complete.  

So, what’s the big deal?  Well, once you’ve filed your tax return for the year, if you make changes to your financial information – your tax return will be incorrect.   For example, you may come across an error – a check that was written in December that cleared in Febuary but was never entered.  If you enter that check in December – one of two things will happen : 1.If you are a corporation – next year your accountant will be pulling their hair out trying to figure out why your Balance Sheet doesn’t match your Tax Return –or 2. If you are a Sole-proprietor and don’t compare your Balance Sheet to the prior year’s closing statement – you will probably never deduct that expense !  

Here’s how  to set a closing date password:

From the Gray menu bar – click Edit – from this menu, click Preferences.  Click Accounting, then the Company Preferences Tab.  Click the button in the closing date section lableled set date/password.  Enter the date you have used your financial statements for Tax returns through and a password (make sure to write it down!).  Then click OK.

 If you are stuck with the payroll service, there is a work-around you can do – it’s not exact, but you can come close.  Here it is:

 Set up each employee as a vendor

1. Enter their time sheet into QuickBooks under the vendor name, be sure to assign the job and labor item
2. On a regular basis (weekly?) Create a “check” to the employee/vendor – when you enter their name on a check, it will ask you if you want to pay using the time entered – say yes
3. The time will populate in detail in the split area (on the item tab) of the check – enter a rate for the employee that is approximate to the base hourly wage, plus payroll taxes (usually about 12%) plus work comp to populate the amounts for each line item
4. At the bottom of the detail, enter the labor item on one line and enter a negative amount for the ENTIRE AMOUNT OF THE CHECK
5. The net check amount will always be zero!  You are basically creating job costs – then zeroing them out to no job.  The actual paycheck created the expenses, so this check is just a wash.

 This can be tricky and if you don’t zero out the check it’s going to be a mess.  It’s also a lot more work than processing the payroll through QuickBooks, but it does work to get payroll costs assigned to jobs.