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If you need to keep track of your income and expenses by department, location, property, project or event, using classes in QuickBooks might be for you.  You can also track your Balance Sheet by class, but it can be problematic.

What Are Classes?

When you use classes in QuickBooks, in addition to item or account, you can also assign a class to each transaction.  Then, you can run a Profit and Loss report by class, and even filter reports like Accounts Receivable and Accounts Payable reports by class.


–          A landscaping business with a Maintenance and Installation division that would like to track the profitability of each division separately

–          A Non-Profit that needs to track income and expenses by grant, event or project.

–          A Sole-Proprietor who uses one account for both business and personal expenses (I which I recommend against, but some insist on doing)

–          A business with 2 or more locations, who uses the same company file to track the profitability (and/or A/R, etc.)

–          Property management, to track the income and expenses for each property

Class Tracking Best Practices

Be careful not to duplicate the Chart of Accounts with classes – What I caution against, and I’ve noticed people tend to do, is the practice of using classes as a duplicate to the Chart of Accounts.  Your classes should be completely different from your COA.  I see this mistake happen most often in businesses that use classes to track projects or events.  They aren’t sure where to track expenses that don’t apply to a project or event, and feel the need to assign something meaningful.  In most cases, I recommend assigning a class to every transaction, but it’s ok to lump many into a generic class.  I’ll talk about this next.

Assign a class to every posting transaction – I recommend assigning a class to every posting transaction, because otherwise, it will be difficult to tell if you have forgotten to assign a class to something important.  What I usually do is have a class called “Overhead” or “Project Allocation” for transactions that do not apply to what I am specifically tracking.  If you need to fit everything into a specific class, you always have the option of “splitting” out things like overhead expenses and assigning a class per line item.

Use classes on “posting” transactions – Some people are confused about which transactions they need to assign a class to.  Notice, I recommend assigning a class to every “posting” transaction.  Assigning a class to non-posting transactions doesn’t hurt anything, but isn’t necessary.  For instance, when you use an invoice to bill your customer for products or services, the invoice is the posting transaction, and you need to assign a class to the invoice and/or the line item on the invoice.  The related payment receipt and the deposit are not posting transactions.  If you use the deposit form directly to post your income, without an invoice or sales receipt, in that case, the deposit IS the posting transaction and you need to assign a class.  It’s the same with bills vs. checks.

Run a Profit and Loss Unclassified report – Depending on the reporting purpose and number of classes, instead of running the “Profit and Loss by Class”, you may prefer to create a P&L Report, filter by the class, and for each one, memorize it.  It’s important either way, assuming you assign a class to every posting transaction as I recommend, to make sure all of your transactions are assigned to a class before creating your reports.  It’s easy to miss some.

Classes can be useful for workarounds – I have also used classes in several workaround scenarios.  It’s something to keep in mind if you should need another “tier” of reporting in addition to account or item.  For instance, I use classes to track pre-paid and unearned income for events.  I have just one liability account called “Unearned Event Income”, yet my client is collecting unearned revenue for several projects at once.  I assign each transaction a class, and then create a custom transaction detail totaled by class so that I can move the unearned revenue to income when the event is over and the income has been earned.  I’ve also used classes to get vendor names on time and material billing to show up for contractors by setting up vendors as classes, assigning the vendor name as the class on the bill entry and editing my template so that the “class” (vendor name) will show on the customer’s invoice.

Balance Sheet by Class – In QuickBooks versions 2011 or later, you can also run a Balance Sheet by Class report.  It’s definitely quirky – QuickBooks says it is an “advanced report” and that you may experience “some unexpected results” that require a strong background in accounting and QuickBooks to fix.  An example of some “unsupported transactions” is: Journal entries with unbalanced classes, Paychecks allocated to multiple classes, Payroll liability payments and Sales Tax payments.  If you really need a Balance Sheet by Class report, I recommend studying QuickBooks help – search “balance sheet by class” to learn more.

Turning on Class Tracking

Turning on the class tracking feature in QuickBooks is easy.  From the Gray menu bar, click Edit – then Preferences – then click Accounting from the menu, the Company Preferences tab, click the box next to “use class tracking”.  Turning on this feature will not in any way affect your current reporting or previous transactions.  It will simply add a column to your transactions that will allow you to assign a class.  In order to assign a class for each line item on sales transactions, you may need to edit your templates to show this column.  If you run payroll in QuickBooks, you’ll also need to set the preference per paycheck or per earnings item under the “Payroll and Employees” company preferences.

Assigning Classes to Historical Transactions

The good news is – if you have the Premier Edition of QuickBooks (2011 or 2012), and have it installed (or re-install it) as the Accountant’s version, you can quickly re-classify your transactions in a spreadsheet type format using the Accountant Center.  This could save you a significant amount of time, and I would say is possibly worth purchasing the program if you are really going to re-classify a lot of transactions.   When assigning classes to historical transactions that have already been reconciled, be especially careful not to inadvertently change anything else about the transaction, aside from adding the class.

Although I rarely use it, I am very grateful for the class tracking feature in QuickBooks.  I hope you find this information helful in your decision to use classes for your business, and in your understanding of how it works.

Penny Lane


If you are having issues with your inventory or cost of goods sold accounts in QuickBooks, you should know that lots of people do!  Inventory in QuickBooks is a complicated and sensitive system.  I’d venture to say that the majority of QuickBooks users are not accountants, and inventory itself is a complex accounting process.

The first thing you must understand is that when you use inventory items in QuickBooks, you must purchase the item on a bill or check in QuickBooks from the vendor in order to receive the items and populate the inventory in QuickBooks.  Inventory adjustments are for adjusting discrepancies, not for regularly populating the inventory.

When you purchase inventory, the cost of it is recorded in the Inventory Asset account.  When the item is sold to a customer, a cost of goods sold is created and the inventroy asset amount is reduced.

If your cost of goods sold is over-stated, a good place to start is to drill down on your cost of goods sold from the Profit and Loss report.  Carefully review the items that were sold,  and loook for items that are posting a cost above what it should be.  You can also run a report on Profitability by product or sales by item and notice any items that appear to cost more than what they are being sold by.

Many people are not clear on how QuickBooks handles inventory and items and may make a mistake setting up their items as a result.  Here are 2 scenarios I have noticed:

Jim purchases rubber tubing from his vendor in a roll of 500 feet and sells it by the foot.  He sets up the item and enters the cost as $500 – the cost for the entire roll – he enters the sales price as $5 – the price he sells it to the customer per foot.  Every time Jim sells one foot for $5, a cost is recorded in the cost of goods sold account for $500.  Can you see the problem?  To rectify this, you must keep in mind to always set up the costs and unit measures for items in their smallest unit measure.  The cost here should have been entered in the same denomination as the sales- by the foot $1.  In order to create purchase orders and such by the roll – you can use the multiple unit measure feature which allows you to specifiy – I purchase this in a 500′ roll and sell it by the foot.  (you need Premier Edition I beleive for this feature) However, the item itself is still set up in the smallest unit measure – by the foot as far as cost is concerned.

Now – here is the problem that sometimes happens with multiple unit measure: The multiple unit measure is set up in reverse.  I admit, the multiple unit measure concept is a little tricky.  I once had a client set up a multiple unit measure that caused a $50000 over-statement on one sale for the cost of goods sold!  That happened because he purchased a product in Kilos and sold it in drams.  Well, there are over 500 drams in a kilo and instead of setting up the unit measure as 500 drams in a kilo, it was accidentally set up as 500 kilos in a dram.  So, for each dram that was sold, the cost of 500 kilos was recorded!

Also, keep in mind that QuickBooks uses the Average cost method of calculating cost of goods sold.  So, if you find an item that has been in use that had an incorrect cost, you must discontinue using that item and set up a completely new one.  Otherwise, it will take forever for the cost of that item to balance to its original.

I recommend anyone using inventory in QuickBooks who is not an advanced user with accounting training consult with a Pro-Advisor who is experienced with inventory management in QuickBooks when setting up the system and for periodic review.

Looking for more info and QuickBooks training online- check out


Once you’ve completed your year end closing tasks and submitted your financial statements to your tax preparer, it’s important to set a closing date password.  Setting a  closing date password doesn’t prevent you from making changes to data prior to your closing date, but if you attempt to make changes, you’ll be prompted for the password.  It’s a good reminder.

 It’s amazing how easy it is to accidentally make changes to your prior year’s data, and it’s important that you don’t.   The exception is, of course, any adjustments provided by your tax preparer.  In fact, always ask if there are adjustments you should make to your books after your tax return is complete.  

So, what’s the big deal?  Well, once you’ve filed your tax return for the year, if you make changes to your financial information – your tax return will be incorrect.   For example, you may come across an error – a check that was written in December that cleared in Febuary but was never entered.  If you enter that check in December – one of two things will happen : 1.If you are a corporation – next year your accountant will be pulling their hair out trying to figure out why your Balance Sheet doesn’t match your Tax Return –or 2. If you are a Sole-proprietor and don’t compare your Balance Sheet to the prior year’s closing statement – you will probably never deduct that expense !  

Here’s how  to set a closing date password:

From the Gray menu bar – click Edit – from this menu, click Preferences.  Click Accounting, then the Company Preferences Tab.  Click the button in the closing date section lableled set date/password.  Enter the date you have used your financial statements for Tax returns through and a password (make sure to write it down!).  Then click OK.


Considering QuickBooks for Mac?

More people are switching to Macs.  If you plan to use QuickBooks and switch to Mac, you should be aware that although QuickBooks has made improvements to it’s Mac software, it’s not as robust as the Windows version. 

  • Most 3rd party add-on solutions are designed to work with the Windows version of QuickBooks, not Mac.  


  • Consultants are hard to find.  Most QuickBooks experts use the Windows version because QuickBooks for Mac has never been as robust.  Accountants and Bookkeepers have avoided it like the plague, preferring the version that allows them to best serve their customer.  I’m pretty comfortable with the Mac version, it’s not THAT different to me.  But I can’t exactly call myself an EXPERT because there are times when I have trouble locating my desired command. 


  • It’s best for companies for no more than 10 employees and Payroll is not integrated.  You’ll use an online service, which is actually great.  But without integrated payroll,  proper job-costing is out.


  • The Mac version does not have advanced inventory features like Units of Measure or Assembly Items.


  • It doesn’t support sophisticated customer pricing scenarios.  Although the latest versions do allow you to offer a sweeping price level to customers, it does not allow you to set price levels per item.


  • The reports are more limited, especially industry-based reports, as there are no industry based Premier versions.


  • Progress invoicing is not offered. 


  • Online banking is not as robust.  Transactions have to be entered one at a time.


QuickBooks for Mac is not the best choice for many businesses, but is just fine for many.  And if you love Mac, you can always keep a PC around just for your QuickBooks.

Intuit is recognizing the Mac trend and working to improve the program to meet the demand.    This year they added  Little Square, a great support site for Mac users.


Is your business Successful or Stressful?

I’ve worked with a lot of small businesses, and, it’s true, a certain amount of stress comes with the territory.   Some of us would even swear that sh*t rolls up hill!  I’ve noticed, however, that there are some key differences between those that are successful, and those that are constantly in turmoil.    

Success = Planning  Stress= Flying by the seat of your pants

If you want your business to succeed, you’ve got to plan, period.  

How are you going to get somewhere if you don’t know where you are going? 

  • It doesn’t have to be terribly complicated, but you should have some basic financial projections and a marketing plan.  
  • Of course, you don’t plan just once and then forget about it!  Your business is a living thing – you need to plan for this year, and next year, and next year you need to plan some more.
  • I recommend systemizing it.  Every Quarter, sit down with your plan for maybe an hour how’d it work out?  Where are you going next?


Success = Knowledge  Stress= burying your head in the sand

This is huge! 

  • Educate yourself and become a well-rounded business person.  Every business owner must understand what’s happening financially in their business. 
  • Figure it out in whatever way you need to.  I’ve known some high-level successful business owners who had what I thought were odd ways of evaluating their finances.  But it worked for them. 
  • Not everyone is good at everything, maybe finances aren’t your thing.   Figure out a way to keep on top of it that doesn’t send you running for cover. 
  • Make sure you have a good bookkeeper and CPA and have them educate you on the important issues for your particular business and force yourself to review these indicators every month and/or quarter.  Same thing with marketing and internal processes. 
  • No Excuses!  There are blogs, books, videos, webinars and classes.  Do something every month!


Success=Getting Help   Stress=Doing it all on your own

Some people would call a lot of entrepreneurs control freaks and workaholics.  It’s easier if we just do it all ourselves.  What normally happens then is that a lot of stuff just doesn’t get done.

  • Think logically.  Where is your time best spent?  Answering phone calls, cleaning the office, bookkeeping?  Probably not.  If you pay someone $25 an hour to clean the office and your time is worth $75, it’s a no-brainer
  • Don’t try to do things you aren’t good at.  People hire you because you are the best, hire others to fill in your weak spots. 

Check out my Online Quickbooks Tutorials


I was just getting ready to start seriously thinking about a 3rd party Inventory Management software system for one of my favorite clients.  The workaround we’ve been using to track their additional inventory situation in Quickbooks Enterprise is far from ideal, and it’s been driving us all to distraction.  I am practically jumping up and down over 2011’s new Multiple Location Inventory feature.

I’ve got issues with 3rd party software – one of them is cost.  It’s really expensive for a small business.  Most small businesses don’t have multiple locations and the 3rd party products are geared toward larger businesses who can afford a few thousand plus training and support plans.  I’m always concerned about the QuickBooks integration and what small business has time to learn a new software program? 

I can’t wait to implement this feature.  Unfortunately, there is a price tag – $699 to unlock this feature in Enterprise.  I wish there wasn’t an additional cost, but I have no doubt it will be well worth it for this client.  With this new feature, there are many more businesses that will be able to use QuickBooks Enterprise.  For anyone on the Full Service Support Plan, I’m told the 2011 update will ship September 27th.

Check out my Online Quickbooks Tutorials


Year End and Payroll in QuickBooks

Technically have until April 15th of the following year to “close out” your financials, but with W-2’s due Jan 31st, – January is crunch time to reconcile payroll

QuickBooks has greatly improved the accuracy of their payroll system over the years, so if you are processing your own payroll in version 2006 and above, things should go smoothly.  Because our work as payroll processors affects the tax returns of our company’s employees, it is critical that the payroll is processed correctly and that the W-2’s we provide our employees are correct. 

Even if you are confident that your processing is sound, it’s important to check and verify your data prior to filing year end reports and passing out your W-2’s.  


Step number one after December 31st is to be sure your California unemployment rates are updated for the new year.  All California employers receive a notice some time in December with their new rate so be sure yours is updated prior to processing any payroll in the new year. 

Step number two is to reconcile your payroll checking account and consider any out-standing payroll checks.  After you have filed your year-end reports, to make any corrections, you will have to go through a complicated revision process!  Most employees cash their payroll checks pretty quickly, so take a close look at any that are still outstanding.  I once had a client who was processing their own payroll inadvertantly duplicate the final payroll of the year.  He hadn’t actually passed out the duplicated payroll checks, but they were in the system.  Luckily, I spotted the duplicated checks in the register so I could void them before we filed our payroll reports!

Step number three is to prepare all of your year end liability payments.  You want your reports to show that all of your liabilities have been paid.

The fourth step is to verify that the payroll liability balance on your Balance Sheet and your current payroll liability balance match.  If your liabilities are separated by item on your balance sheet, be sure each item matches in balance.  Now is the time to make any adjustments and research any discrepancies.   It may seem obvious that the payroll liabilities report would match your balance sheet, but I have seen many instances where they were thrown off by liability adjustments. 

Next,  run payroll summary reports for the fourth Quarter, and prepare your 941 and DE6 ( or other State)  reports.  Run payroll summary reports for the entire year and prepare my 940 and DE7 (or other State), double-checking the totals against the payroll summary reports.  I always pay special attention to double check deduction and addition payroll items to be sure they are affecting the employee’s taxation appropriately.  It is common to make errors in setting up wage garnishment; owner’s time to jobs, and retirement contribution items – now is the time to correct any errors in payroll item set up! 

The final step is to prepare the W-2s.  Again, I review each W-2 carefully and compare the totals to my entire year payroll summary report.  Employees are always chomping at the bit for their W-2 because most are expecting a refund.  I caution against taking any short-cuts to relieve the pressure, and when pressed I simply let everyone know they will get the information by Jan 31st.  If you discover any discrepancies that you are unable to resolve, do not hesitate to contact a QuickBooks expert to assist you in resolving the issue.

Check out my Online Quickbooks Tutorials

Cash vs. Accrual Based Accounting…. What does it mean to the Small Business Owner?

In my opinion, one of QuickBooks’ best features is its ability to run financial reports, like a  Profit and Loss, on both a Cash and Accrual Basis.  But  I am often asked by my clients “What does that mean?  What is Cash vs. Accrual?”.   I’ll try to answer that question here on a level that applies to the Small Business Owner evaluating his or her Profit and Loss Report and Balance Sheet.  I’ll  try to leave out the  accountant-speak and technicalities.

Your Profit and Loss Report  is a snapshot of your business’ income and expenses for  a specified period of time. Your Balance Sheet  report  is basically a report of what you own, what you owe, and your business’ Equity (the difference between what you own and what you owe) as of a certain date.  

Let’s talk about Accrual basis first. 


When you are looking at your Profit and Loss report on an Accrual basis,

  • Your income will include everything you billed customers for during that time period, whether or not you have been paid by those customers. 
  • Your expenses will include bills from vendors that you have entered into QuickBooks for a that time period, whether you have paid the bills or not.  


On an Accrual Basis, the Balance Sheet report will include:

  • What is owed to you (customer invoices, called Accounts Receivable)
  • And what you owe (outstanding bills to your vendors, called Accounts Payable). 


 In order to achieve good Accrual-based reports in QuickBooks, you need to use the Customer Invoicing and Enter/Pay Bills features.  It’s also a good idea to pay attention to the dates you bill your customers and bills you enter from your vendors, to be sure they are posted in the period they were incurred. 

Most small businesses file their taxes on a Cash Basis, so why would you want to evaluate your finances on an Accrual basis?  I ALWAYS recommend evaluating your business’ financial performance on an accrual basis at least monthly, because what you have collected from your Customers and what bills you have paid aren’t necessarily indicitive of your business’ earnings performance. 

Let’s look at a professional services business like mine, for instance.  First of all, we bill many of our clients on an hourly basis, so I make sure to bill out as much time as possible on the last day of the month.  That way, when I run our Profit and Loss Statement, I can see what we earned that month, not necessarily what we collected, but what we earned. 

 Like any business should, we know what we need to earn every month to break even.  I may have cash in the bank because I haven’t paid all the bills yet, or because I collected on some old invoices from customers, but that doesn’t necessarily mean that our business has performed as it should. 

Income is the largest consideration in our business, but it holds true with expenses as well.  Expenses should be entered into QuickBooks as Bills for the date they are incurred.  That way your Accrual-based Net Income (Income less Expenses) for the period you are evaluating is a true indicator of your performance for that time period.  Did you spend more than you earned for that period?  If so, it may take a month or two to catch up to you, and you want to be prepared.  Are you showing consistent earnings yet your cash flow is suffering?  You may have an issue with collecting on outstanding invoices from customers.

So what good are Cash basis reports?  For one thing, many businesses file their taxes on a Cash basis, so you want to keep on top of what your income is going to look like for tax purposes.   Cash basis reports are also more closely tied to your business’ cash flow.   When you look at a Profit and Loss Report on  a Cash basis, you are only going to see Income from customers that you have actually received in your hot little hands.  You will only see expenses for things that you have actually paid.   If your business operates on a cash basis – meaning you pay for your business expenses as you incurr them and collect money from your customers on the spot, your Cash basis and Accrual basis reports will be the same.    

In QuickBooks, you can easily run Cash and Accrual Based Financial Reports, click here for a quick interactive video lesson:     Switch from Cash to Accrual Basis Report in QuickBooks

Even with this information, financial reports can be confusing!   The larger the business, the more complex the financial evaluation should be.   There are many other aspects of your finances you need to evaluate, like the return on investment of your assets.  Your industry may also require special attention to one or more aspects of your financial situation.   Intelligent, competent, business professionals sometimes feel uncomfortable asking for assistance evaluating their finances.  Don’t feel like you should know this stuff instinctively!  Just like anything, it takes patience, practice and often professional help to understand.    There are, of course, many books on the subject, as well as the occasional seminar.  Don’t be afraid to seek assistance from your bookkeeper (they may know more than you think, but you just never asked!), your CPA,  or  a business coach.

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Today I want to share with you a new tool I discovered for QuickBooks and shopping cart integration. There are so many shopping carts out there these days and it’s pretty obvious that for most of them, QuickBooks integration is not their number one priority! Yet, if the QuickBooks integration stinks, your accounting system and your company’s operations can be crippled.

There is one shopping cart software that I am familiar with (of course there are new ones every day!) that has a great QuickBooks integration feature, and that is pdg, but pdg is not right for everyone. Recently, a brilliant programmer named Tyler introduced me to Webgility , who makes a 3rd party program that allows very detailed integration with many different shopping carts including interspire and zen cart and QuickBooks! Check out their current compatibility list here 

As an example, Interspire shopping cart offers EXTREMELY limited mapping, you can basically choose between bringing orders into QuickBooks as Invoices or Sales Receipts and that’s pretty much it. It also sets up new “jobs” in QuickBooks under the customer called “cart customer”. What a mess! The Webgility software allows extremely detailed mapping, including “if/then” scenarios, like IF the payment status on Interspire is “terms” bring it in as an invoice, and allows you to choose at which “status” (shipped, pending, unpaid, etc.) you want to import orders into QuickBooks. AND it’s really easy to set up!

11/4/2010 UPDATE:

It’s been an interesting ride with ECC.  We have experienced some glitches, and most have been fixed right away.  I kind of get the feeling they are flying by the seat of their pants because they did not have an update ready when QuickBooks came out with 2011.  Our main issue is that ECC doesn’t support different customer “types” with different pricing structures.  It means the orders for our customers with special pricing show up in quickbooks as the wrong dollar amount!  Really NOT GOOD.  With that said, I am unable to find any other bridge program that works with Interspire.  So I’m still going to have to recommend PDG as a better shopping cart choice for QuickBooks Integration.

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If you email documents from QuickBooks, use on line banking or run payroll in QuickBooks you will need to upgrade your software to at least the 2008 version, which for most means 2010. If not, you can continue to use 2007, but keep in mind that Intuit will stop issuing maintenance releases. Maintenance releases are different than program upgrades, maintenance releases “fix” program glitches and keep the program updated to work with the latest operating systems and other programs. Folks used to be able to use QuickBooks well past the sunset date, but the use of email and on line banking have made upgrading a necessity for most people.

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