Class accounting is one of the options available with QuickBooks software. Most accountants and bookkeepers misunderstand its purpose and how to properly implement this wonder tool of accounting. If you are considering using class accounting and want to have a full comprehensive understanding, this is the article for you.
Class accounting is a form of accounting whereby the revenues and direct costs are grouped into departments. The term ‘classes’ is merely a substitute for departments in business. It is a very effective form of accounting with construction, engineering and with the service sector. Learning how to use class accounting in construction is easy and works extremely well with phase accounting.
One of the goals of accounting is to report to management performance results, specifically financial performance. Since most businesses sell more than one product or render more than one service, management is interested in understanding the performance of the respective products or service. To successfully report this information, the accountant uses departmental accounting to divide the products or services into categories.
An owner of a hair salon needs a well organized and properly formatted profit and loss statement (income statement) to properly evaluate performance. There are multiple presentation formats used in the service industry, but after 25 years of accounting I advocate for the functional presentation arrangement. This form of a profit and loss statement allows the owner to quickly and decisively determine performance throughout the entire operation.
Class accounting breaks down sales and the associated cost of sales into functional groups. Whether you use divisions or departments or product/service lines class accounting allows you to identify those more profitable areas of operations. This is just one of the many different financial reports used in small business.
Just like a tip of an iceberg, a progress billing for a construction project is an invoice for a small part of the overall contract value. It needs to be recorded correctly and presented to management in a way that is understandable and beneficial for making decisions. This article will introduce the concept and cover how progress billings are presented on the balance sheet.