Tag Archives: business

Shall I be using class or location in QBO (QuickBooks Online)?

Class is a powerful feature available in QuickBooks Online (QBO). Although originated from QuickBooks Desktop accounting system, there is a slight difference in reporting.

How to use class in QuickBooks?

You may use the class as a departmental account. Set up marketing, R&D, production, etc. as a class; then, tag it to each income or expense account when creating an invoice or bill. The profit and loss report shows the income and expense breakdown by class once the transaction saved. QuickBooks class feature is a unique way of analysing the business account and less tedious in setting up compared to the sub-ledger method used by other accounting systems.

There are many other ways of using the class feature in QuickBooks:

  • A Law firm uses the class to allocate income and expense of each lawyer.
  • Use it to track the running cost of the sales team or vehicle.
  • Property management business uses the class feature to analyse the profitability of each property.
  • Or you may use the class to track local and overseas sales.

The class feature is flexible and is up to your imagination to apply it into your business account.

QBO class or location?
Location tag to header, whereas the class tag to detail.

Each transaction consists of a header and a detail section. For payment transaction, the payee and bank are part of the header section, whereas the accounts used at the bottom of the transaction are the detail section. Each of the expense account at the detail tagged to a class, and pick up by the Profit & Loss by Class report once transaction saved. But if you print the Balance Sheet by Class from QuickBooks Online, the amount paid from the bank account will group under the unassigned classification since there is no class field available at the header. 

QuickBooks Profit and Loss by Class report
QuickBooks Profit & Loss by Class

You may consider using a location feature, for branches or retail outlets, in QuickBooks Online instead of a class. The data entered will show in both Profit & Loss and Balance Sheet.

QuickBooks Profit and Loss by Location report
QuickBooks Profit and Loss by Location

The location field is at the transaction header section, which breaks down the accounts used in both the header and detail section. Location is a better choice for businesses that have multiple branches, but you cannot have multiple locations in one transaction (at this moment). You may have to get the supplier to change the way they bill or change the internal workflow if they bill you more than one branch in a single invoice.

QBO Balance Sheet by Location
QuickBooks Balance Sheet by Location

Technology is evolving, QuickBooks introduces new feature from time to time. Who knows? Maybe someday there might be a better way of using or reporting by class and location 🙂

Discuss with your QuickBooks consultant, sign up a demo or trial to test drive before you switch over from QuickBooks Desktop to QuickBooks Online.

Shall I set up the inter-company receivable as an account receivable type?

An account receivable account adds to the account list when you create a company file in MoneyWorks. The amount owed by the customer, for goods and services sold on credit, get updated in accounts receivable account. Renamed the accounts receivable to trade debtors (or trade receivable) if you prefer to separate trade from non-trade. Then, add other debtors or inter-company receivable to the list for tracking non-trade debtors or subsidiaries.

Accounts receivable
accounts receivable

Each debtor (the name) links to a receivable account. Whether it is a trade, non-trade, or subsidiary, the receivable account field of the name has to tag to an account receivable account to use it in invoices. The ageing process kicks in when an invoice posted.

link subsidiary to an inter-company receivable
link subsidiary to an inter-company receivable

Since a name has to tag to a receivable account, invoices to the subsidiary may have to do it outside the system if the inter-company receivable is a current asset type instead of an account receivable. The function is different, although accounts receivable is part of the current assets category. It is workable, but maintain the outstanding in foreign currency may be time-consuming.

You can set the bank, accounts receivable, and accounts payable with a foreign currency. These accounts get revaluated once new exchange rate entered. If inter-company receivable has set up as a current asset type; then, the exchange gains or losses have to record via a general journal if the outstanding is in foreign currency. It could be tedious when there are lots of entries.

Invoice subsidiary for expenses paid on behalf

Assume you have paid $10,000 to XYZ supplier, which inclusive of $2,000 worth of services on behalf of your subsidiary ABC.

As mentioned earlier, you can invoice the subsidiary when the name has tagged to a receivable account. Create an invoice to the ABC subsidiary from MoneyWorks for $2,000 and add the expense which you use for paying XYZ supplier at the detail line of the invoice. The invoice posted debit the inter-company receivable and credit expense account, which will then reduce the expense from the original $10,000 to $8,000.

The above example is for illustration, the account used may vary.

Both methods have advantages and shortfall. Consult your accountant and try out on a sample file with your existing data and compare the result before adopting either.

Note: Some accountant may name it as Intercompany or Interco instead of Inter-company.

Offset a foreign currency credit note with a local currency invoice

MoneyWorks, like most of the small business accounting software, tag the currency to a name. You have to create as two creators instead of one if a creditor traded with you in both foreign (such as USD) and local currency (SGD).

You can easily offset an invoice with a credit note from the same supplier (or customer) if they are in the same currency. You can either use the contra feature from the command menu or a payment transaction to offset it. However, if both invoice and credit note is in a different currency, then have to consider using a contra account to clear them instead.

Assuming you have:

  • Purchase Invoice from the A Supplier (SGD) with S$6,073.32, and a
  • Credit Note from the A Supplier (USD) at US$260(cr).

First, you create a current liability account (you can use current asset if you preferred) and name it as ‘contra’. Then, create a dummy:

Dummy invocie
  • Credit Note from A Supplier (SGD) with contra account, for S$260(cr); and a
  • Purchase Invoice from the A Supplier (USD) with contra account, for US$260.

Next, use the contra feature (from the command menu > Adjustment) to offset:

  • Credit Note of S$260 with the Purchase Invoice of A Supplier (SGD); and
  • Credit Note of US$260 with the dummy Purchase Invoice from the A Supplier (USD).

I, usually, prefer to use the same document number (maybe add a – behind the reference number to differentiate it) and a memo in the description for audit purpose.