We briefly covered a few QuickBooks features at one of our most recent seminars, including how to use the Class function. Afterward, we had several attendees express interest in learning more about how to use the Class feature in QuickBooks. Although implementing and maintaining QuickBooks Classes can be a bit intimidating, it’s a much easier process than you’d expect. While we do consider the QuickBooks Class feature to be manageable, it’s important to pay close attention to details. If you’re not careful, you can create a lot more work for yourself. We’ve compiled a list of recommendations based off of the most common errors we’ve seen. Take a look at our top 4 recommendations for using the QuickBooks Class feature here:
Tip #1: Plan QuickBooks Classes Based on Your Reporting Goals
The point of using the QuickBooks Class feature is to generate reports that will ultimately give you some insight into different departments of your business. One of the most common rookie mistakes new users make is creating too many classes. Many QuickBooks users get excited about the endless possibilities and quickly become overwhelmed by the number of classes they’ve created. Before you get too carried away, start by looking at a handful of essential departments to create your Classes. Chances are, you’ll only need a select few Class reports to fit your needs.
Take a look at this example for some further clarification:
Let’s say a farmer grows several crops at a number of locations. He wants to know how crops are performing at each location so he can compare growing seasons and years. In this situation, it’s best to set up a Class for each location and then Subclasses for the crops at each location.
Here’s an example of creating unnecessary Classes:
Let’s say the same farmer took it a step further and created a Class or Subclass for specific acreages. To put it into perspective, it’s highly unlikely that someone who farms multiple locations would need financial reports on certain pieces in addition to the entire location. In this situation, it’s best to limit your Classes.
Creating extra Classes without a game plan to use corresponding reports can be extremely costly and a huge waste of resources for a number of reasons. For starters, it takes additional time to enter transactions into every Class and Subclass that is implemented. Why go to the trouble if you’re not going to use it? Second, the Class reports can become so long that they can’t be formatted to fit on normal-sized paper or viewed on an average computer screen. In conclusion, it’s important to exercise precaution when it comes to creating Classes. Reserve your resources by only creating what is necessary.
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Tip #2: Set Up Classes For Your Overhead Expenses
Overhead expenses may apply to some, all or none of your Classes- it all depends on the type of business you’re in. The easiest way to manage your overhead expenses is to create a Class specifically for them. If you forget to apply overhead to its own Class, it will automatically be applied to “unclassified”. This can cause a whole slew of problems which we’ll cover in the next section.
Tip #3: Use QuickBooks Classes Consistently
One of the easiest tips and tricks to using the QuickBooks Class feature is to use it consistently. If you start using them, use them in every single transaction you enter. If you don’t, it can cause some major problems. Transactions that aren’t placed into their appropriate Class will show up as “unclassified” on QuickBooks reports. These unclassified transactions defeat the purpose of Classing and make the subsequent reports inaccurate. You can revisit old entries and place them into the appropriate Class by running an unclassified report. Be aware that this option can be time-consuming, frustrating and costly. It’s best to do it right the first time around. Make sure to run your unclassified reports regularly and clean up any missed transactions to avoid major headaches down the line.
Tip #4: Don’t Use Classes for Balance Sheet Transactions
Generating reports by using the Class feature can be extremely helpful. As you fall deeper down the rabbit hole, you’ll see that the Class report feature can be used on a variety of different projects. Be that as it may, I will caution you against using the Balance Sheet by Class report until you’ve gained at least a year of experience using Classes.
If you don’t have prior experience, there’s a greater risk that your Classes will cause your Balance Sheet to become unbalanced. This, as you can imagine, can be very difficult to correct. I recommend getting comfortable using the Class feature first so you can figure out how it can potentially alter your reporting. Once you’re comfortable using the basics, you’ll be able to manage more advanced functions such as Classing your Balance Sheet.
There are several tips and tricks out there to help you master the QuickBooks Class feature. Have you run into any of these problems before? How has the Class feature worked for you?
By Tax Manager
