How to allocate overhead expenses by class to another class once posted based on total sales of each class so overhead does not show as a minus on the P&L statement?

George_B_Nylan · ‎October 19, 2018

I set up three classes in QBO to track income and expenses. After entering my invoices and expenses I ran a Profit and Loss statement and it shows my three classes I setup for Income. Class 1 Income, Class 2 Income, and Class 3 which is my overhead expenses. Class 1 and 2 show positive income after expenses but class three has no income and is showing a negative after paying expenses. I need to move class 3 overhead expenses over to the other two classes which have income and positive balances.

How do I allocate the amounts in the overhead column in class 3 to the other two classes based on total sales received using a percentage?

Then how do I record a journal entry to allocate the overhead expenses?

Thanks

DebbieA · ‎October 19, 2018

To move revenues, expenses etc. between classes we set up two "other income" accounts. An intracompany contribution income and an intracompany contribution expense. These will report below your ordinary income on the PL and should always net to zero, since it's just moving revenues, expenses, etc. between classes.

So your entry would be

dr. intracompany contribution expense Class 3

cr. overhead expense Class 3

dr overhead expense Class 1

cr. intracompany contribution income class 1

George_B_Nylan · ‎October 19, 2018

ok, That looks good. so now how do I split the overhead exp into these classes by percentage and make a journal entry?

DebbieA · ‎October 19, 2018

I guess I don't understand the dilemma here. I don't think Quickbooks will do that automatically, so you will need to periodically compute the percentage and make the journal entry.

WinTown · ‎October 19, 2018

I have a similar issue. I simply want to "move" an expense from one class to another. Details: Within Payroll processing I want to have a certain amount allocated to a different class, but all the payroll generated expenses are set to the employee's main class. I've tried various versions of the double General Journal entries using the "other income" accounts but none have had any affect on my class balances. Any help would be appreciated!

DebbieA · ‎October 19, 2018

I'm not sure which balances you're referring to. On our PL we number the "other" accounts so that they fall below the line of ordinary income. Therefore the ordinary income accounts will reflect the proper balance. You may also need to move the associated balance sheet account. For example, when you decrease the expense in the main account you may also want to move cash there from the allocated account to keep the balance sheet in sync with the PL.

Malcolm Ziman · ‎October 19, 2018

"all the payroll generated expenses are set to the employee's main class."
We run a new payroll run after going to Payroll Settings/Accounting and changing the employee classes. This is to split an employee's weekly payroll between 2 classes

Lei · ‎December 09, 2018

How to allocate the fee from one class to another 2 classes? finally, how to do a related journal entry to allocate in QBO?

ex, there are 3 kinds of classes: overhead, design, service. I chose the class when doing income and expense entries. Since overhead expense are related to design and service classes, at the end of month, I want to allocate overhead expense to each of design, service according to the total sales. how can I do that in QBO? and how to record a journal entry to allocated the overhead expenses to Design and Service.

Simply, I have to calculate and distribute overhead fee into design and service abiding by the total sales, then record a journal entry to allocate the fees calculated and distributed to classes: design and service. How to realize this? thank you so much!

Lei · ‎December 09, 2018

Hi, seemly your question is similar to mine. Unfortunately, nobody understood what we mean after seeing the replies. Did you find the solution?

Sajid_Rahim · ‎October 03, 2019

Hi @Lai did you ever figure out the overhead allocation issue? I am struggling with the same question.

j_d15 · ‎April 23, 2020

I just did this question on the certification and I have feeling it's like this:

Premise: Class A income + Class B income = Total income

Class A cost allocation = Class A Income / Total Income

Class B cost allocation = Class B Income / Total Income

Expenses: Class E1, E2, E3, and so on

Example journal entry to allocate costs

debit credit

Class E1 Account X1 (Class = Class A)

Class E1 Account X2 (Class = Class B)

Class E1 Account X3 (Class = OVERHEAD)

where:

X1 = Class E1 Total Expense * Class A cost allocation

X2 = Class E1 Total Expense * Class B cost allocation

X3 = X1 + X 2 (the original Expense transaction amount)

Will update the thread if it's wrong

j_d15 · ‎April 23, 2020

I can confirm that this solution is correct ^

The question didn't appear along with the other incorrect items when I had to retake the exam

bkinnard · ‎September 28, 2022

j_d15 I know this is a year later but a quick question on this. I understand the math and how this is calculated. Did you get this to work automatically or is it still a manual journal entry? if automatic, how did you do it?

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How to allocate overhead expenses by class to another class once posted based on total sales of each class so overhead does not show as a minus on the P&L statement?