Intuit’s QuickBooks product allows for financial reporting on multiple levels. QuickBooks classes feature allows your business or nonprofit to report on one segment of the business. In accounting lingo, one cost center. To understand cost centers, imagine a business that manufactures prefab houses, barns and sheds. Using the class feature in Quickbooks could allow the company to report the manufacturing, personnel and supply costs for houses, barns and sheds separately.
This kind of reporting allows management to see if sheds are profitable, or better yet, if sheds are as relatively profitable as houses.
Classes are especially useful to nonprofits to segregate program expenses and to determine what programs are generating enough income. Too often I’ve walked into situations where the small business or nonprofit using QuickBooks software has not used classes correctly, or at all. In these cases the reporting generated by their accounting system is simply a flat, one dimensional overall view. Of course someone could hunt and peck their way through transactions to separate income and expenses after the fact, but that’s hardly a good use of someone’s time.
To use classes do the following:
Determine your cost centers, the various areas your firm does business in. Don’t confuse cost centers with customers or projects (we’ll talk about segregating them in QuickBooks in a different post). Even the biggest customer or project is simply just part of a cost center.
After you’ve generated your list of cost centers, open up QuickBooks, go to Edit -> Preferences -> Accounting -> Company. Now click both use classes for transactions and prompt to use classes.
Remember to use classes on every transaction. If your business has shared costs that are hard to separate, create a class to hold these costs – using Admin or General or some catchy name like that. You can then allocate those costs later on based on the percentage of income or personnel costs or manufacturing costs each cost center generates.
