Classes are a fantastic feature in QuickBooks Online for Commercial Real Estate (CRE) accounting. When using classes, you can add more than one asset to a single QuickBooks account. This allows you to differentiate between your buildings quickly in reports. It also allows you to reduce the Profit and Loss Statement (P&L) length, and associate specific expenses down to a specific tenant or unit in your building.
Before you start, though, it is recommended you never use the same QuickBooks account when you have different ownership structures. If you have more than one asset, you must look at the ownership to determine if it can be combined in one account. In some cases, it is possible to build your CRE portfolio and not need to expand into more QuickBooks accounts unless you want to.
We address the topic of QuickBooks entity separation in this article, Importance of Separate QuickBooks for Real Estate. It is always a good idea to check with your Tax Accountant or CPA and seek their guidance as well before proceeding. They can help you make the best choice for your portfolio.
How to Set Up QuickBooks Online Classes for CRE
Having classes set up correctly is crucial when using QuickBooks Online. Based on our experience with QuickBooks accounts, we have created best practices for setting them up. These practices help you get the most from your accounts. Your use of classes will depend on how your organization is set up and can be tailored to meet your needs.
Class tracking is particularly helpful for commercial real estate tracking common area maintenance expenses. To learn more about the purpose of using classes in QuickBooks, you can read more about how to use classes in QuickBooks for commercial real estate.
We have created this guide to help you with this setup depending on your Asset/Building/Unit structure.
We suggest setting the classes up using the following tips:
- Use one class per Building/Asset
- Use sub-classes of the Building/Asset for each Unit if any of the expenses need to be allocated to only one Unit
- Use an additional class for Administrative, General & Administrative (G&A), or Overhead
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.
How Do You Get Classes Started in QuickBooks Online?
Organizing your finances efficiently is key to managing a successful commercial real estate portfolio. Classes help you track income and expenses by different Assets or Buildings in commercial real estate. Here are the easy steps to enable and set up Classes in QuickBooks Online:
- Login to your QuickBooks Online and click Settings. Then, select Account and Settings to customize your account preferences and manage key business details.
- Click Advanced to turn on Track Classes. Make sure to Assign classes one to each row in transactions and save your updates.
- To set up the classes, go to the gear icon and select Settings. Then click All Lists and choose Classes. Here, you’ll find a complete list of all the classes you’re using.
- To create a new class, click New, enter the class name (e.g., LLC, Asset, or Building), and save.
- To create/enter another class or sub-class, repeat the steps above.
How Do You Run 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.
What Information Can You Get From a P&L by Class?
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.
Maximize Your Use of Classes in QuickBooks Online
By effectively setting up classes in QuickBooks Online, CRE professionals can streamline their financial operations, improve reporting accuracy and speed for tenant relations, and make informed business decisions. You’ll gain valuable insights into your property performance by categorizing income and expenses correctly.
To further enhance your commercial real estate accounting accounting processes, consider integrating QuickBooks Online with STRATAFOLIO. We offer a comprehensive suite of tools designed specifically for commercial real estate. STRATAFOLIO syncs with QuickBooks to automate critical tasks, eliminate missed lease escalations, and provide a holistic view of your portfolio.