What You’ll Learn
Learn how to use classes in QuickBooks Online for Commercial Real Estate (CRE) accounting so that you can streamline your reports and manage expenses more effectively.
- How to Use Classes in QuickBooks for Commercial Real Estate
- What is the Purpose of Using Classes?
- Steps for Posting Expenses in QuickBooks with Classes
- Posting Entity Specific Expenses
- Posting Asset Specific Expenses
- Posting Building Specific Expenses
- Posting Unit Specific Expenses
- Steps for Adding Classes in QuickBooks
- Additional Uses for Classes in QuickBooks Accounting for CRE
How to Use Classes in QuickBooks for Commercial Real Estate
What is the Purpose of Using Classes?
QuickBooks’ class tracking feature lets businesses categorize financial data beyond the standard chart of accounts. It assigns classes to transaction lines so that companies can monitor income, expenses, and profitability across properties without cluttering the Profit & Loss (P&L) with subaccounts.
Class tracking is particularly helpful for commercial real estate for tracking common area maintenance expenses.
Scenario I:
There is one QuickBooks account for a single entity/single LLC, and this entity has one Asset and a Building with multiple Tenants. Most expenses will be distributed to all Tenants, but certain expenses may be only appropriate for certain Tenants.
1. All reimbursable expenses classed at this level will be shared by all tenants within the Entity at their pro-rata share of the Entity.
2. All reimbursable expenses using this class will be shared pro-rata among all tenants in the Asset/Building based on their rentable square footage of the Building.
3. All reimbursable expenses using the specific subclass for the Unit will be 100% allocated to only this Tenant/Unit.
*Note: For STRATAFOLIO CAM Reconciliations, the reimbursable expense account(s) must be mapped to an Operating Expense subcategory for allocation to occur.
Scenario II:
There is one QuickBooks account for multiple entities/LLCs, but within the same QuickBooks account, there are multiple Entities, Assets, Buildings, and Tenants.
We do not recomment this setup with STRATAFOLIO because you will lose some classification details. Use it only with the approval of your accountant.
However, if you combine multiple entities in one QuickBooks account, you will need to make a class for each entity and then the subclasses for the Assets, Buildings, and Tenants.
1. All reimbursable expenses classed at this level will be shared by all tenants in only this Entity at their pro-rata share of the Entity.
2. All reimbursable expenses using this class will be shared pro-rata among all tenants in only this Asset based on square footage of the Asset.
3. All reimbursable expenses using this class will be shared pro-rata among all tenants in only this Building based on square footage of the Building.
4. All reimbursable expenses using the specific subclass for the Unit will be 100% allocated to only this Tenant/Unit.
*Note: For STRATAFOLIO CAM Reconciliations, the reimbursable expense account(s) must be mapped to an Operating Expense subcategory for allocation to occur.
Scenario III:
There is one QuickBooks account for a single entity/single LLC, but this entity has multiple Assets, Buildings, and Tenants within the same entity.
1. All reimbursable expenses classed at this level will be shared by all tenants within the Entity at their pro-rata share of the Entity.
2. All reimbursable expenses using this class will be shared pro-rata among all tenants in only this Asset based on square footage of the Asset.
3. All reimbursable expenses using this class will be shared pro-rata among all tenants in only this Building based on square footage of the Building.
4. All reimbursable expenses using the specific subclass for the Unit will be 100% allocated to only this Tenant/Unit.
*Note: For STRATAFOLIO CAM Reconciliations, the reimbursable expense account(s) must be mapped to an Operating Expense subcategory for allocation to occur.
To streamline your financial record-keeping for commercial real estate with a well-structured chart of accounts, learn how to set up Chart of Accounts for a Commercial Real Estate Company.
Steps for Posting Expenses in QuickBooks with Classes
We will use the example of the Restaurant in the Shopping Center Example shown below. They are the tenant renting Unit 110 in Building 1 for all of the examples below.
For the Restaurant, take its 7,500 square feet and divide by 18,750 (total rentable sq. ft. of the building). Then, take that number and multiply by 100. The Restaurant’s pro-rata share of the Building is 40.00%.
- Unit 110 Square Footage – 7,500 = 100%
- Total Building Rentable Square Footage – 18,750 = 40%
- Total Asset Rentable Square Footage (Scenario 2 and 3) – 35,714 = 21%
- Total Entity Rentable Square Footage (Entity 1 in Scenario 2) – 35,714 = 21%
- Total Entity Rentable Square Footage (Scenario 3) – 90,850 = 8.26%
**Assuming Building 2 is 16,964 sq ft and Asset 2 is 55,676 sq ft**
Posting Entity Specific Expenses:
The Property Insurance expense is typically an Entity specific expense, so post this to the general ledger reimbursable account called Property Insurance in the Chart of Accounts (COA). Depending on your class setup, this will be allocated to the tenants by their pro-rata share of the Entity in STRATAFOLIO.
Scenario I:
Posting the expense using the class “Entity” or “Asset/Building” will calculate 40% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Scenario II:
Posting the expense using the class “Entity 1” or “Asset 1” will calculate 21% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Scenario III:
Posting the expense using the class “Entity 1” will calculate 8.26% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Posting Asset Specific Expenses:
Real Estate Taxes expense are typically expenses that will be incurred for the building or parcel, so post these to the general ledger account called Reimbursable:Real Estate Taxes in the Chart of Accounts (COA). Depending on your class setup, this will be allocated to the tenants by their pro-rata share in STRATAFOLIO.
Scenario I:
Posting the expense using the class “Asset/Building” will calculate 40% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Scenario II:
Posting the expense using the class “Asset 1” will calculate 21% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Scenario III:
If posting the expense using the class “Entity 1” will calculate 8.26% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO. Post this as in Scenario II.
Posting Building Specific Expenses:
Landscaping expense are typically expenses that will be incurred for the building, so these will be posted to the general ledger account called Reimbursable:Landscaping, which is set up in the Chart of Accounts (COA). Depending on your class setup, this will be allocated to the tenants by their pro-rata share in STRATAFOLIO.
Scenario I:
Posting the expense using the class “Asset/Building” will calculate 40% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Scenario II:
Posting the expense using the class “Building 1” will calculate 21% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO.
Scenario III:
If posting the expense using the class “Entity 1” will calculate 8.26% of the expense to Unit 110 on the CAM Reconciliation in STRATAFOLIO. Post this as in Scenario II.
Posting Unit Specific Expenses:
For the Restaurant, a grease trap expense is a tenant-specific expense that needs to be allocated 100% to the tenant. Post this to the general ledger account called Reimbursable: Grease Trap in the Chart of Accounts (COA). All three scenarios are the same, so post the expense to the subclass created for Unit 110.
Steps for Adding Classes in QuickBooks
Whether you’re managing different departments, projects, or locations, adding classes in QuickBooks helps streamline reporting and provides a clear view of your financial performance. We will walk you through the simple steps to enable and add classes in QuickBooks. This ensures your accounting is precise and tailored to your business needs.
Step 1
In QuickBooks Online, go to Settings using the gear icon. Then, select Account and Settings.
Step 2
Select Advanced. Then, turn on Track Classes. Assign classes one to each row in transactions. Save your updates.
We recommend selecting the option to Warn when a transaction has no assigned class. This way, you will have a reminder for every transaction to have a class assigned. We suggest using an Overhead class so that all transactions have a class assigned to them.
Step 3
Next, you need to set up the actual classes. Go to the Settings in the gear icon again and select All Lists. Then, click on Classes. This listing contains a complete list of the classes you are using.
Step 4
To create a new class, select New, then type the class name that you have decided to use. We suggest the name of the LLC, Asset, or Building. Then, Save your updates.
To enter another class or sub-class, repeat the steps above. When creating the sub-class, select the check mark and the correct class that needs to be the parent. In QuickBooks Online, you can make a parent and up to 4 children/sub-classes under each parent class.
Additional Uses for Classes in QuickBooks Accounting for CRE
Income Items and Classes
Classes are helpful for reducing the number of Income Items in your QuickBooks account as well. With the use of classes, there is no need to create multiple Income Items for Rent. When posting the invoice, use the Rent Income Item and the proper Class. When running a Profit and Loss (P&L) in QuickBooks, simply display columns by Classes, and the income will be shown correctly for the property.
All the income and expenses for a specific property will be in the same column. This is a much easier way to make your P&L more user-friendly for the owner and anyone looking at your financial reports.
*When creating Income Items, there is no need to add a class or an amount. The amounts and classes used will vary depending on the tenant and month. If you need help creating the Income Items, you can find help in our article Creating Income Items in QuickBooks Online.
Running a Profit and Loss by Class Report
There are two different ways you can do this in QuickBooks Online:
- With Class tracking enabled, open the Profit and Loss Report. From the Display columns by dropdown, select Classes.
- In Reports, go to the Business Overview section for the Profit and Loss by Class Report.
The Profit and Loss (P&L) by Class report in QuickBooks provides a breakdown of income and expense by both classes and sub-classes.
Items in the Not Specified column reflect unclassified transactions and may cause inaccuracies in the report. You will want to identify these transactions and reclassify them correctly if this happens.
We suggest using a class for Overhead or Administrative Expenses in each QuickBooks account. This way, you can be assured that every transaction has a class associated with it. QuickBooks Online has a feature that you can turn on that will alert you to any transaction that does not have a class selected when saved. That way, you never miss anything!
As a good practice, we suggest running your P&L or Income Statement regularly to check the Unspecified Class column. You should be doing this task monthly or quarterly, at least. Clicking on any dollar amounts in this class will allow you to see the transaction(s). This makes it easy to update any transaction with the correct class. This will save you time and effort at the end of the year when verifying an expense.
Setting Up Your Chart of Accounts
As mentioned before, using classes for CRE helps reduce the length of your P&L or Income Statement. When multiple buildings are in one QuickBooks account, it is typical to set up multiple sub-accounts in a Chart of Accounts (COA) for each building and each of their expenses. This creates very long P&Ls that most owners get lost in. By using classes for the different assets and buildings, one expense account can be used for all of them. This saves time and effort and allows for less human error when entering transactions. Check out this article on Setting Up a Chart of Accounts for a Commercial Real Estate Company for suggestions and a commercial real estate COA template.
Using Classes for CAM Reconciliation
Classes are frequently used when completing Common Area Maintenance Reconciliations (CAM). A budget is set at the beginning of the year for operating expenses for the common areas, plus taxes and insurance for a building. In a NNN lease, tenants are then invoiced monthly for their pro-rata share of that budgeted amount for that building. At the end of the time period, typically the calendar year, a CAM reconciliation is done to true-up the differences with the tenants.
Depending on your QuickBooks and company setup, you can post the expenses to a specific Entity, Asset, or Building, and the expenses will be shared on a pro-rata basis in STRATAFOLIO when running the CAM reconciliations. Classes can be used to split where those expenses go. If you use a Unit-specific class to post an expense in your QuickBooks, 100% of the expense will be allocated to only that Unit on the CAM reconciliations. This helps reduce errors and enhance transparency in tenant invoicing and CAM reconciliations.
The use of classes is ideal for complex scenarios where multiple properties and tenants require systematic tracking. Learn more about The Importance of Annual Operating Expense (CAM) Updates in this article.
Customizing a Balance Sheet Report while using Classes
There is no Balance Sheet by Class report. However, you can customize a Balance Sheet report by running a standard balance sheet to show columns by class, then select Classes from the Display columns by drop-down.
Each asset should have its own Fixed Asset accounts. If applicable, they should also have separate liability accounts for each loan. Please check with your Tax Accountant or CPA for advice on your specific situation. While updating the Journal Entries for each Balance Sheet account may be more work, it may be worth the effort.
Use QuickBooks to Level Up Your CRE Accounting
Adding classes in QuickBooks is a straightforward process that can significantly enhance your financial organization and reporting. By leveraging this feature, you can gain valuable insights into your business operations and make informed decisions with ease. Start using classes today to keep your accounting system organized and aligned with your business goals.
We also have other resources to help you learn more about classes in QuickBooks Online for Commercial Real Estate (CRE) accounting. Explore these resources to streamline your reports and manage expenses more effectively, or find out how else STRATAFOLIO can help you with commercial real estate accounting by scheduling a free demo.
