Client needs to track customers as if separate businesses on P&L's, which is better Classes or Locations?

CRaccounting · ‎August 17, 2021

I have a client with a hotel cleaning business, just 1 location. I understand Classes are usually used for 1 company with different locations, or 1 store with different departments, etc. I also understand that Locations cover an entire transaction where Classes cover line items. Client is now expanded into having customers (hotels) in several states.

We need to have P&L allocate income/expenses per state for tax purposes.

He also wants to view each Customer (Hotel) as if they are each a separate business on the P&L's.

What's the best format to obtain both objectives? Would it be use Locations as the States he has customers in, then Classes for each Customer? Or would it be Classes as States, then sub-classes for each customer? Or another different option for setup?

There will be times that COGS or Expenses purchased will cover more than 1 customer, so locations would not fit in that case if a single purchase need to be allocated/assigned to different customers/hotels.

He'd also like to see examples of P&L's with both. I found many Profit & Loss by Class examples online, but can't find any P&L's by Location examples, anyone know of any or have a link to any?

Thanks in advance.

Rea_M · ‎August 19, 2021

Let's get this sorted out so you can get to choose the appropriate option that better suits your business needs, @CRaccounting.

A billable expense is an expense that your client incurs on their customer’s behalf when they perform work for them. Recording billable expenses will easily let their customers reimburse them when they receive their invoices. While the class tracking feature will let you track your client's income, expenses, or profitability by business segment. To figure out their difference, You can refer to these articles:

Regardless of the option, either you assign all your expenses to customers or start using classes, it'll eventually work for your client's business. However, if I were to select the better method, I'll recommend tracking customers' expenses using classes.

Once you've chosen the better option for your client's business and start assigning transactions, pull up the appropriate Profit and Loss report (either the Profit and Loss by Class or Profit and Loss by Customer). Just go to the Business overview section from the Reports menu's Standard tab. This is to effectively monitor your client's transactions and manage them accordingly.

Also, I'm adding this article to further guide you in managing your client's business's growth using QuickBooks Online (QBO): QuickBooks Help Articles. It includes video tutorials and topics about account management, banking, and expenses, to name a few.

Keep me posted on how it goes. If you have further clarifications about billable expenses and class tracking in QBO, you can drop a comment below. I'll gladly answer them for you. Take care and stay safe.

View solution in original post

LeizylM · ‎August 17, 2021

Hi, CRaccounting.

You can track this important information in Locations and Classes in QuickBooks Online. This lets you track your income and expenses. You can use either one of them, individually or both.

Let me guide you on how to turn on Classes and Locations in QuickBooks Online:

1. Go to the Gear icon and select Account and Settings.

2. Click on the Advanced tab and click the pencil icon for Categories.

3. Choose to switch on Classes and Locations or only one.

4. Click Save.

5. Once done, go to the Gear icon again.

6. Under Lists, select All lists and choose either Classes or Locations.

7. Click +New on the top right and enter in a name for your Class/Location.

For more information on how classes work in QuickBooks Online, please check out this article: Using Classes and Locations in QuickBooks Online.

Just in case you need it, here's a helpful article that tackles how to set up and use class and location tracking in QBO.

I’m happy to offer assistance again if you have more questions for Quickbooks Online. Post a new thread or reply here and I’ll be there.

CRaccounting · ‎August 17, 2021

Thanks LeizyIM.

I've seen this standard reply and already viewed the links in many posts I already looked up. I'm already aware of Classes and Locations and how to turn them on. I was looking for specific replies and opinions on what is the best direction to go with my specific questions.

jamespaul · ‎August 17, 2021

Hello, CRaccounting.

I'm glad that your client's business is expanding and growing! I'd like to clarify your pointers and guide you in setting up your QuickBooks Online account.

You're in the right track in setting up your client's hotel business. It's normally set up as hotels for customer profiles, classes as customers, and locations as states.

Though, the labels can be interchanged depending on how you would record your transactions and how you want your data to appear on reports.

I'd recommend using a test QuickBooks Online account or a trial to see how your setup would play out. Use these links to sign up for a trial or a test drive:

Test drive QuickBooks Online
https://quickbooks.intuit.com/pricing/ (sign up for a trial and use the same login credentials)

Regarding the COGS and expense recording, you can use multiple expense forms to allocate multiple customers or hotels instead of using a single entry.

Following your original setup, this is what it looks like on different Profit and Loss reports:

Other users might visit this thread to say their piece on the reporting and your setups.

If your client needs to connect their bank into QuickBooks Online, you can use this article as a guide: Connect bank and credit card accounts to QuickBooks Online,

Please let me know if you have more questions in setting up your account or on any processes in QuickBooks. I'm always here to help.

CRaccounting · ‎August 18, 2021

Thanks jamespaul this is helpful!

We've already been using QBO for this client/file, so it's not new we're just looking to get more detailed reporting.

You reminded me that we already have the capability to get P&L by Customer. Although I don't see that as a preset report, we have to use regular P&L and Customize it to get columns for customers, correct?

So in our case here, we could just use P&L by Customer instead of using any Classes. We have the income portion covered already via invoices to customers, then we'd just have to start assigning all expenses to customers.

I am a little confused where you say:

It's normally set up as hotels for customer profiles, classes as customers, and locations as states.

How do customer profiles come into play here?

Depending on your reply about customer profiles if that changes anything, it sounds like our best way to go would be just using the reports for P&L by Customer and using Locations for States, having each of those separate reports for client's purpose and then tax return purposes, and no need for classes. Would you agree that sounds like the best fit?

MaryLandT · ‎August 18, 2021

Allow me to join in this thread and clarify things out about P&L by Customer report, CRaccounting.

The Profit and Loss by Customer report is a standard statement and you can find this under the Business overview section. Here's the screenshot for your visual guide.

About customer profiles, you can set up hotels as customers and customers as classes in QuickBooks. See these images below.

For the client's and tax return purposes, running reports by class helps you check sales, expenses, or profitability by business segments. Hence, you can run the Profit and Loss by Class to group your income, expenses, and net income by class.

If you don't want to use classes, you can run standard reports for your daily sales. Check out these links to learn how to get the data that matters to your business:

To help record your hotels' entry, I suggest looking for a third-party app that can integrate hotel management with QuickBooks. Or consult your accountant for specific instructions on how to record revenues, taxes, and payments.

Keep me posted if there are other things you need about this by commenting below. I'll be right here to provide the information that you need.

CRaccounting · ‎August 18, 2021

Thanks very much MaryLandT.

Thanks for the area where the P&L by Customer is, appreciate that.

All hotels are already setup as customers, this has been an ongoing QBO existing file.

Being that the hotels are customers, if all expenses get assigned to customers, what would the need be for classes still? Each Customer would already be its' own section for sales/expenses/profitability if all transactions were assigned to customers, wouldn't it? Or am I missing something different?

I don't think just the customers assignments or classes alone would work, since we also need to see income/expenses broken out per State. Each State has multiple hotels, so that's where I was thinking Locations would come into play?

JoesemM · ‎August 18, 2021

Thanks for the prompt reply, @CRaccounting.

I appreciate you for sharing detailed information about your concern. Allow me to chime in and share some additional insights.

Using class tracking lets you track account balances by department, business office, location, separate properties, and breakdown of your business. In your case, since you already assigned all expenses to your customers, it's okay not to use the class tracking feature.

For your income and expenses that are broken out per state, you'll have to add a location for each of them. This way, you can seamlessly categorize your data and see all the payments for one location, and deposit them as a group.

Before adding a location tracking, you'll have to turn on this feature by going to the Account and Settings. Let me show you how.

Go to the Gear icon ⚙, then select Account and Settings.
Select Advanced.
In the Categories section, select the Edit ✎ icon.
Select the checkbox to track locations.
Hit Save, then Done.

To add a location tracking here's how:

Go to the Gear icon ⚙️, then select All Lists.
Select Locations.
Select New, then add the Name of the location you want to track.
Click Save and close.

For more information about location tracking, see this article: Set up and use location tracking.

Also, I'm adding these articles on other ways on how to filter Profit and Loss reports, so you can compare your income and expenses for different periods:

Please let me know if you need clarification about this, or there's anything else I can do for you. I'll be standing by for your response.

CRaccounting · ‎August 19, 2021

Hi @JoesemM

I have NOT assigned any expenses to customers yet. Only income has been assigned to customers via invoices. Given this, would you suggest assigning all expenses to customers OR to start using classes? I'm trying to figure out the difference between these 2 and which is the better option to go with, since P&L can bue used both by customer and by class. Thanks.

Rea_M · ‎August 19, 2021

Let's get this sorted out so you can get to choose the appropriate option that better suits your business needs, @CRaccounting.

A billable expense is an expense that your client incurs on their customer’s behalf when they perform work for them. Recording billable expenses will easily let their customers reimburse them when they receive their invoices. While the class tracking feature will let you track your client's income, expenses, or profitability by business segment. To figure out their difference, You can refer to these articles:

Regardless of the option, either you assign all your expenses to customers or start using classes, it'll eventually work for your client's business. However, if I were to select the better method, I'll recommend tracking customers' expenses using classes.

Once you've chosen the better option for your client's business and start assigning transactions, pull up the appropriate Profit and Loss report (either the Profit and Loss by Class or Profit and Loss by Customer). Just go to the Business overview section from the Reports menu's Standard tab. This is to effectively monitor your client's transactions and manage them accordingly.

Also, I'm adding this article to further guide you in managing your client's business's growth using QuickBooks Online (QBO): QuickBooks Help Articles. It includes video tutorials and topics about account management, banking, and expenses, to name a few.

Keep me posted on how it goes. If you have further clarifications about billable expenses and class tracking in QBO, you can drop a comment below. I'll gladly answer them for you. Take care and stay safe.

CRaccounting · ‎August 19, 2021

@Rea_M

Perfect thanks very much for your input!

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Client needs to track customers as if separate businesses on P&L's, which is better Classes or Locations?