Does your Texas organization need to segregate its accounting by physical location, business line, or some other type of division? Contact our QuickBooks ProAdvisors for accounting help in Tyler, TX, and surrounding areas.
Setting up Classes in QuickBooks
Setting up classes in QuickBooks can simplify a Chart of Accounts (COA) for an organization that has one EIN Number (Employer identification number identified by the IRS) and more than one fiscal entity. These fiscal entities may be segregated by physical location, business line, or any other similar type of division.
We have seen a COA that is so cluttered with an attempt to divide these fiscal entities, that it literally contains both asset and expense accounts for each separate entity. QuickBooks resolves this clutter with Classes. Using this simple tool, the COA dissolves into a single asset, liability, revenue and expense account. Idealistically, one would have separate bank accounts for each location for ease of bank reconciliations, hence separate cash accounts.
A Case Study
A franchise hardware store with four locations set up classes with a single EIN Number
When we started working for this company, it was overwhelming. Bank reconciliations were done on a monthly basis! The sheer volume of activity in these accounts made this a completely unworkable situation.
Cash was reconciled with a journal entry to balance to the bank account. This did not make sense to us. We started reconciling these accounts daily, and no more journal entries that were a mystery.
It didn’t end there, the revenue and expense accounts were suffering as well. The previous bookkeeping team saw little need to post the amounts to the proper locations. Once we saw how the accounts flowed with each other, we simplified them daily to verify they were posted correctly. Hence, less confusion and everyone could see on the financial reports how and where entries were posted.
Financial Reports with QuickBooks
Once entries were accounted for each location and classified, financial reports became a breeze to reconcile, verify, and to handle decisions made by management. This also simplified the process for the CPA, as well as sending out financials to financial institutions.
These reports can be compared at any interval for verification purposes.
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