Class/Location tracking is a powerful tool that is regularly used incorrectly. Almost every account I have worked with struggled to understand when and how to use the class tracking to breakdown their financials.
What is class & location tracking? The class & location tracking feature in QBO is a tag that you can apply to revenue and expense transactions in QBO. The intention is to provide a way to categorize transactions so that you can run a profit and loss statement that only shows those transactions for that line of business that has been tagged.
What classes should be: The categories that you use for class tracking should have both revenue and expense transactions associated with them. They should be broad permanent categories that describe things like unique departments, unique cost centers, or unique lines of business (ie customer types, product types, etc.).
What classes should not be: Granular temporary categories like a conference that was attended should not be used (track these in projects). Classes also should not be departments that don’t generate revenue i.e. marketing, admin, etc. Those types of departments should be tracked in roll-up accounts in the chart of accounts.
What are the benefits to class tracking?
Class & location tracking provides a way to separate your lines of business without having to create unique QBO accounts. Class & location tracking allows you to view profitability for each line of business separately, eliminating manual manipulation of the reports to pull the information out.
Example Set-up:
I have a business with two locations and three revenue streams. I can create nested or parent child classes & locations to track all of these lines of business. I create the following:
Location 1
Location 2
When I create an expense or revenue transaction like an invoice or a bill, I select the class & location I want to code the transaction to.
When I run the profit and loss statement, I can sort for the class & location I want to view. Some possible combinations would be:
- P&L for Location 1
- P&L for Class 2 for Location 1
- P&L for Class 2 for both locations
You can see that I can separate and combine each line of business as I want. This lets me analyze the factors that affect profitability for each line of business easily.
Want to learn more:
https://quickbooks.intuit.com/au/resources/product-updates/using-classes-and-locations-in-quickbooks-online/
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