Revised: 2011.09.01
Setting Up Classes that Meet Your Information Goals
by Mark Wilsdorf
Flagship Technologies, Inc.
QuickBooks™ Add-Ons and Solutions You Can Use
http://www.goflagship.com
Classes provide a "third dimension" for analyzing your
records; another way to "slice 'n dice" your Quicken or QuickBooks
transaction records so
that they can produce management information instead of just financial
information. You can use classes for any purpose you want--any activity for which you want to be able to get income and expense
totals independent of the chart of accounts (or categories if you
use Quicken). For example, you could set up a class called Storm
Damage to track all of your bills for repairing storm damage
over a couple months' time, to help you accumulate a total for
turning into your insurance company.
The most common use of classes however, is for gathering
management information. You can set up classes to represent the
different parts of your business you've identified as profit centers and
cost centers. Tagging transactions with these classes then,
helps you accumulate income and expense totals for the different
parts of the business, to help you value a which parts are the most
profitable.
[Here's a
related article about classes as profit
centers and cost centers.]
The Quicken and QuickBooks' Help systems do a decent job of
describing the basics of setting up classes, and you can find a lot
of information online at Intuit's product sites (www.QuickBooks.com,
www.Quicken.com) and in many
other places throughout the Web.
Many articles fail to mention some of the
subtle ideas involved in setting up the Classes list. My purpose
here is to bring together in one article, a few of the important
things you need to know...along with some others that are rarely mentioned.
Oh, and I hope you don't mind a mix of farm/ranch (and possibly other)
business examples. This company began serving agriculture
exclusively, and many of those examples are still appropriate to
illustrate important points.
Key Points About Setting Up Classes:
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The first thing to know: you must turn on class
tracking before the Classes feature is available anywhere
in QuickBooks. This trips up a lot of new users. They look for the
Classes list or Class columns in their QuickBooks forms and don't
see either one, and wonder what's wrong. In the QuickBooks main
menu select Edit >
Preferences > Accounting > Company Preferences, then
check mark the Use class tracking option.
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There are no right or wrong ways to set up classes, only different
ways. However, some ways can lead to a Classes list structure
that doesn't produce the kinds of class-based reports you want. It
takes some learning and experimentation to figure out what's right
for you, so expect to at least
partly scrap and remake your Classes list setup during the first year or
two of using
Quicken or QuickBooks.
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Changing your Classes list is easy. Following from the
point above, it's important to know that both Quicken and
QuickBooks make it easy to change your Classes list--regardless of
how many transactions you may have entered already. You can rename
classes, move them to different positions with the class list's
structure, merge classes, and so on.
So as you're getting started using classes, don't spend a lot of
time designing the "perfect" class list. First of all,
your first attempt won't be perfect, and second, reshaping your
class list along the way, as you learn more about how you
need it to look, is easy.
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Each class will (usually) represent a single cost
center or profit center, or will be a "parent" class for a group of
other cost centers or profit centers (known as subclasses or
"child" classes).
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Unless your class list is extremely simple, it should normally
have
at least two class levels (i.e., classes and
subclasses). The reason? Some incomes and expenses cannot be
assigned to a specific class, but you can assign them
"closer" to where they ultimately need to be, by assigning them to a
parent-level class that represents a broader part of your business.
For example, given this (partial) Class list:
Repairs to a planter you use for planting both Corn and
Soybeans aren't specifically costs of either enterprise. Rather,
they're an overhead expense of Grains (which encompasses both Corn
and Soybeans.) On the other hand, soil testing fees may apply to
all crops and could more reasonably be assigned to the Crops class
rather than to any of its subclasses. What do you do with costs you've accumulated
at the Crops and
Grains levels? Normally you would allocate costs accumulated at
those levels to their perspective subclasses, so that the Corn,
Soybeans, and Hay classes are charged with the full costs related
to their production. But I digress; allocating costs among classes
is a cost accounting (sometimes called managerial
accounting) topic, better dealt with in
another article.
The main point is that it's best to set up your Classes list
with at least a couple different levels, representing categories
and subcategories of your various profit centers and cost centers.
It's usually best not to mix different
kinds of Class qualifiers in class names. Instead, establish
more different class levels (classes and subclasses). That will
make it easier to get a wide variety of reports concerning your
enterprises.
Example: Crop & Crop Year Classes
Here's an example of using two different class qualifiers (both
a crop name and crop year) in a list of classes:
- Corn '09
- Soybeans '09
- Wheat '09
Assuming multiple years of information are kept, here's
what the Classes list would look like after two more years:
- Corn '09
- Corn '10
- Corn '11
- Soybeans '09
- Soybeans '10
- Soybeans '11
- Wheat '09
- Wheat '10
- Wheat '11
While there's nothing terribly wrong with this setup, there are
two minor problems:
Having so many Classes that begin with the same characters at
the same class level renders the QuickFill feature of
Quicken and Quickbooks useless for typing in classes while
entering transactions. You'd have to type an entire Class
name to make the program fill it in correctly.
In case you're unfamiliar with it, the QuickFill
feature attempts to complete a data entry for you as you begin to
type it in. If you typed "so", then Soybeans '09
would appear in the Class field of your transaction entry.
The problem with the class list shown above is that multiple class names begin with exactly the same letters. Based on this
list, typing "so" will always fill in Soybeans
'09. But if you wanted to enter Soybeans '11 instead?
You'd either have to type the whole thing, or more
likely, you'd click the drop-down arrow on the Class field and
select Soybeans '11 from the form's class list.
Getting a report for all three crops for any particular crop
year requires choosing three different names from the Class list.
Here's the same basic list, arranged with only one
qualifier per class level:
This arrangement takes care of both problems:
You'd only have to type "2011:s" to have Quickbooks
fill the Class name field with 2011:Soybeans.
Getting a report for all three crops for any particular crop
year requires choosing only one class (such as 2010
for the 2010 crop year).
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How your Classes list is arranged determines how easy it is
to get the reports you want. Structure your Classes list so
that the types of information most
important to you are closest to the top (at the highest levels of
the hierarchy). Here are some examples for different information
goals, to clarify this concept.
GOAL: Easy reporting by crop year.
GOAL: Easy reporting of long-run costs & incomes across
crop years.
GOAL: Easy reporting by farm location.
Or maybe not...
Things are always changing, so this idea about
arranging class levels with "the most important ones" at the top
may not always be important.
The arrangement of your Classes list does
limit how QuickBooks reports are arranged, but some
add-on reporting tools can "rearrange"
class levels for report purposes. (Our company's ManagePLUS
for QuickBooks software is one of these.)
This means two things:
It may be possible to prepare reports for any of
the class arrangements shown above, regardless of how the Classes
list is structured.
The structure of your Classes list is
much less important when you have that kind of extended reporting
capability.
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You can still set up classes for ad hoc purposes even if
most of the Classes list is devoted to profit centers and cost
centers. For example, you could still set up and use the Storm
Damage class mentioned at the beginning of this article,
without interfering with how the rest of your Classes list works.
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