Before You Start

This guide is for QuickBooks Online users and business analysts who are currently using either Classes or Projects, or are considering implementing them for more granular financial reporting.

Overview

15 min
Setup Time
Intermediate
Difficulty
High
Reporting Impact

What You’ll Learn

  • The fundamental differences between Classes, Locations, and Customer/Projects
  • When to use Classes for departmental or segmented P&L
  • When to use Customers/Projects for job costing and project profitability
  • How your choice impacts financial statements and reporting

1. Understanding Core Concepts

QuickBooks Online offers several dimensions for organizing your financial data:

Dimensions for Reporting

  • Classes: Track income and expenses for different business segments (e.g., departments, product lines).
  • Locations: Separate financials by physical business locations.
  • Customers/Projects: Track profitability for individual clients or specific jobs.

Default Behaviors

  • Classes: Can be applied to both income and expense transactions. Appear on P&L by Class.
  • Customers/Projects: Primarily for tracking income and expenses related to a specific client. Appear on P&L by Customer/Project.

2. Class vs. Customer/Project: The Core Distinction

You have two primary tools for granular reporting, each designed for a different purpose.

Using Classes

Classes are ideal for internal segmentation of your business operations.

Pros:
  • Excellent for departmental P&L.
  • Segments entire business operations.
  • Applicable to any income/expense.
Cons:
  • Not designed for client-specific tracking.
  • Cannot track project status.
  • Limited project management features.

Using Customers/Projects

Customers and Projects (a sub-feature of Customers in QBO) are designed for client-facing work and job costing.

Pros:
  • Perfect for job costing.
  • Tracks profitability per client/project.
  • Integrates with invoicing and time tracking.
Cons:
  • Not ideal for general internal departments.
  • Can be cumbersome for non-client expenses.
  • May require more detailed setup per project.

Expert Tip: Avoid using both Classes and Customer/Projects for the exact same purpose (e.g., tracking a specific project). This leads to redundant data and makes reporting overly complex. Choose the tool that best fits the primary reporting need.

3. When to Use Which

Here is a high-level guide for making the right choice.

{
  "reporting_scenario": "Departmental P&L",
  "recommended_field": "Class",
  "example_use": "Marketing Dept, Operations Dept, Sales Team",
  "best_for": "Internal financial segmentation"
}
{
  "reporting_scenario": "Project Profitability",
  "recommended_field": "Customer/Project",
  "example_use": "Client A: Website Redesign, Client B: Q4 Marketing Campaign",
  "best_for": "External client work, job costing"
}

4. Implementation Workflow

  1. 1

    Define Your Reporting Needs

    Clearly identify what financial insights you’re trying to gain. Are you tracking internal teams or client-specific jobs?

  2. 2

    Enable Necessary Features in QBO

    Go to Gear Icon > Account and Settings > Advanced. Ensure ‘Track classes’ and ‘Track locations’ (if applicable) are enabled. For projects, ensure ‘Projects’ is turned on.

  3. 3

    Standardize Your Naming Conventions

    Use consistent names for Classes, Locations, and Projects. This is crucial for clean reporting (e.g., ‘MKTG’, ‘OPS’, not ‘Marketing’ and ‘Mktg’).

Common Error: Over-Segmentation

Don’t create too many classes or projects for minor distinctions. This can lead to a cluttered chart of accounts and make data entry cumbersome and prone to errors.

5. Reporting and Analysis

Key Reporting Checklist

  • Run a Profit and Loss by Class report
  • Generate a Project Profitability report for key clients
  • Verify all transactions are tagged correctly
  • Review reports regularly for accuracy and insights

Need Help?

Optimize Your QBO Setup

Struggling to get the right reports from QuickBooks? Our experts can help you design a robust class and project tracking system.

Contact Us