Before You Start

This guide assumes you have a QuickBooks Online Advanced subscription and a defined chart of accounts and class/location structure.

Overview

40 min
Setup Time
Advanced
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • How to prepare your QBO Advanced for departmental budgeting
  • Setting up Classes or Locations for departmental tracking
  • Creating detailed budgets by class/location
  • Generating and analyzing budget vs. actual reports for departments
  • Best practices for ongoing budget monitoring and adjustments

1. Preparation Steps

Before creating your departmental budgets, ensure these are configured in QuickBooks Online Advanced:

Required Setup

  • QuickBooks Online Advanced subscription
  • Classes and/or Locations enabled and defined
  • Chart of Accounts structured for departmental reporting
  • Clear definition of your organizational departments

Recommended for Granular Reporting

  • Projects enabled for specific initiatives
  • Custom fields configured for additional data capture
  • Tags utilized for flexible, ad-hoc reporting (if applicable)

2. Choosing Your Budgeting Approach

QuickBooks Online Advanced offers powerful budgeting capabilities. The key is how you structure your departments using either Classes or Locations.

Method A: Using “Classes” for Departments

This method is ideal for tracking revenue and expenses for functional departments.

Pros:
  • Excellent for P&L tracking by department.
  • Integrates seamlessly with most transactions.
  • Allows for detailed profit & loss reporting by class.
Cons:
  • Requires consistent class assignment on every transaction line.
  • Can become complex with many sub-classes.
  • Limited to one class per line item.

Method B: Using “Locations” for Departments

This method is best when your “departments” are distinct physical sites or independent business units.

Expert Tip: If your “departments” are more like distinct physical locations or business units, using Locations is ideal. It provides a higher-level organizational view, especially for balance sheet accounts. For pure P&L functional departmental tracking, Classes are often more flexible.

3. Step-by-Step: Creating Your Departmental Budget

Here is the high-level workflow for setting up your budgets by department.

Here is a conceptual JSON block illustrating how a budget line item could be structured for a system.

{
  "budget_item_id": "DEP-MKT-Q1-EXP",
  "department_name": "Marketing",
  "fiscal_year": 2025,
  "account_name": "Advertising Expense",
  "period_amounts": {
    "January": 5000.00,
    "February": 4800.00,
    "March": 5200.00
  }
}

4. Setting Up Your Budget in QBO Advanced

  1. 1

    Enable Budgeting & Classes/Locations

    Go to Gear Icon > Account and Settings > Advanced. Ensure ‘Classes’ and/or ‘Locations’ are turned on under ‘Categories’, and ‘Budgeting’ is enabled under ‘Automation’.

  2. 2

    Define Budget Period and Type

    Navigate to Gear Icon > Tools > Budgeting > Add budget. Select the fiscal year, interval (monthly, quarterly, yearly), and ensure you select ‘Profit and Loss’ as the budget type.

  3. 3

    Select Departmental Filter

    Crucially, choose to segment your budget ‘By Class’ or ‘By Location’. Then, select the specific department you are budgeting for, or ‘All Classes/Locations’ to budget broadly and then drill down.

  4. 4

    Enter Budget Amounts

    Input the expected income and expense amounts for each relevant account, per period, for the selected department. You can autofill if desired.

  5. 5

    Review and Save Your Budget

    Carefully review all entries before saving. You can create multiple budgets for different departments or budget types.

Critical Step: Budget Basis

When creating your budget, ensure you select the correct ‘Budget Basis’ (e.g., Cash or Accrual) to match your company’s accounting method for accurate comparison with actuals.

5. Monitoring & Reporting

Reporting Checklist

  • Generate the “Budget vs. Actuals by Class” or “Budget vs. Actuals by Location” report.
  • Filter the report to focus on specific departments, periods, or accounts.
  • Review monthly or quarterly variances for each departmental line item.
  • Schedule regular budget review meetings with department heads.
  • Adjust future budget periods as needed based on performance and forecasts.

Need Help?

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Implementing advanced budgeting can be complex. Our experts can assist with custom setup and reporting.

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