The main difference between class and account, is that every transaction must have an account assigned to it, while it’s optional to assign a class. So think of the class list as having a second chart of accounts which you can apply to transactions to group them into categories different from those provided by the Chart of Accounts.

Accounts mostly organize transactions into financial categories – income, expenses, receivables, payables etc., but classes let you organize transactions into any categories you want, and you have full control over what those categories are. The Class list is empty when you first create a QuickBooks company file, so you can set up any number of classes you want in it. Most often you’ll use classes for grouping transactions into management information categories as opposed to the financial accounting categories provided by the Chart of Accounts.

As a general rule, use accounts to identify the “what” of a transaction and classes to identify the “why” or “what for”. For example, if you buy Office Supplies for multiple departments and you want to keep track of each department’s use, the “what” is office supplies; the “what for” is the various departments – administrative, sales, production, etc. So office supplies (expense) should be an account and each department should be set up as a class.

Creating lots of sub-accounts is a common mistake among new QuickBooks users; however, it should be avoided at all cost. To illustrate the problem, consider this fragment from a simple chart of accounts:

      Office Supplies
      Marketing
      Accounting

Now here is the same fragment of the chart of accounts, but with sub-accounts added:

      Office Supplies
              Administrative Department
              Sales Department
              Production Department
      Marketing
              Website
              Events
      Accounting
              Bookkeeping
              Audit Prep

As you can see in the illustration, the account list can become exponentially long which will produce very lengthy, unattractive financial reports. The Classes list in QuickBooks can have up to five levels (classes and subclasses), which gives you more functionality and flexibility in using the class feature. To have class information arranged in reports in a way that provides the most benefit, it does help to give some thought as to how the list should be structured.

To Turn on Class Tracking in QuickBooks Windows – Pro, Premier, Enterprise:

• Click on Edit, then Preferences in the main menu to open the Preferences window.
• Click on the Accounting icon in the left pane of the Preferences window.
• Select the Company Preferences tab in the right pane.
• Checkmark the Use class tracking item on the Company Preferences tab.
• Click OK to close the Preferences window.

To Turn on Class Tracking in QuickBooks Mac:

• Click on QuickBooks, then Preferences in the main menu to open the Preferences window.
• Click on the Transactions under Workflow and check the box that says Use class tracking.
• Click OK.

To Turn on Class Tracking in QuickBooks Online:

There are four (4) levels of Quickbooks Online subscription: 1) Simple Start, 2) Essential, 3) Online Plus, 4) Advanced. Class tracking is only available in the Online Plus and Advanced editions.

• Click on the Gear icon at top right of screen (your company name) and select Account and Settings under the Your Company tab
• Click the Advanced button in the left menu bar, then click the pencil icon at Categories to edit preference.
• Check the box at Track classes (You may also want to check the box at Warn me when a transaction isn’t assigned a class)
• Click Save.

After completing these steps, a Class column will appear in many of QuickBooks’ form windows. In some cases such as for invoices, you may have to customize the form’s template to have the Class column appear.