Speaker 1: QuickBooks Enterprise 2021 Class Tracking Responsibility Accounting Allocate Indirect Expenses to Departments. Let's get into it with Intuit's QuickBooks Enterprise 2021. Here we are in our Class Tracking Responsibility Accounting Practice file. We currently have the open windows open. You can open the open windows by going to the view drop down and selecting the open windows list. We now want to think about the allocation of our indirect expenses. Those expenses that we can't allocate directly to a department. For example, we can't simply enter a bill or enter a check and whatnot and allocate it to one department, but rather have to break it out to departments in some way, some shape, some form. We're going to go back on over to Excel where we did this process. We broke out the rent and the utilities in Excel. These are going to be the rent bill and the utility bill. We did so using what we would call an activity base, basically the squared footage, to come up with a ratio to be breaking out the rent and the utility to these departments. We could then enter this as we enter say the bill or the check, breaking it out using the classes to break out in one bill or check. Or you can imagine a situation where we might have multiple different things that kind of fall into this group where they're not classified and then we have to allocate them out. If we have a data input system where we have someone just entering the data, it may be burdensome for them to then think about how they're going to be allocating as they do the data input. So it actually might be easier then in some cases to say, hey just pay the bill, allocate it to this department, which might be undesignated department or something like that, or unclassified completely. Then periodically, say at the end of the month, we will then go back in and do the proper allocation either by reallocating what is in there, going back into the form, or we will enter a journal entry to make the allocation. So let's take a look at both of those methods. I'm going to go back on over to QuickBooks. First, let's just say we're going to enter a bill to the rental company and then we're going to just allocate it to the four classes as we enter the bill. So we can do that. I'm going to say this is going to be for the rental company. That's what they're called, the rental company. Then we're going to set them up. If I set up the rental company here, then what the problem is, if I go then to the additional information, I don't really have a class I can set these to because I want to hit four classes at the same time when we pay the rental company. So this is no longer usable, whereas it might be effective if we would use, say, a different method, which we'll talk about next time when we do the utilities. So I can't really assign a class in this way by name. So what I can do is say, okay, I'm going to save. You haven't assigned a class. Save it anyway. So save it anyway. And then we're going to go down here and manually assign it out. We'll just do it manually, which is kind of not not as neat. So then we're going to say this is going to be rent. I'll call it with the rent tab. I'm going to set up the expense account. Once again, we're going to have it one expense account. I'm just going to set up one expense account and then break it out to the multiple classes using the class feature. We could have multiple expense accounts and then and then and we could possibly use the multiple expense accounts to help us allocate the classes. But then that would result in four different accounts instead of one account, which would make the financial statements a lot longer. We're going to use the one rent account here. And then I want to allocate by class. The full rent amount was the $10,000. I believe it was $10,000 that we're going to be breaking out. So I'm going to say $10,000 up top. And then I got to break it out by class. So now I got to go all right well the first department service department one got $1,000. So service department one $1,000. And this is service department one. And then rent again. We're going to the same expense account but this is time. Second department also $1,000. Service department two $1,000. To service department number two. This one. And then rent again. But this time we're breaking that out to the sales department one. So this is going to be $3,000. Sales department one. Sales D1. And then we've got $5,000 to sales D2. So rent once again $5,000. So that you can see the plug formulates here for us. Sales D2. There it is. So we should be able to break this out. What is this going to do? It's going to enter a bill increasing the accounts payable. It's going to hit one expense account even though we entered it four times. That being rent expense. But breaking it out vertically by column to the four departments here. So let's check it out. Let's save it. Check it out. So save it. Close it. Check it out. By going to the reports drop down. Company and financial. We're going to go down to the profit and loss by class. P&L by class. Income statement by class. Changing the dates up top from 01-01-21 to 12-31-21. So there we have it. So now we've got our rent broken out by class with that one transaction. That looks good. Now let's consider this again. And imagine what you want to think about here is like well what if I'm having someone else do the data input and I don't want them every time I have something that's indirect that they have to think about you know breaking it out in that kind of manual fashion. And also I might not know exactly what the best activity base to use is right now. Maybe I want to adjust it at the end of the month or so. So that I can get what I believe is the best activity base to do the allocation method. So we then well I might just say hey just enter the bill and put it into either unclassified. Don't assign a class in other words. Or enter the bill and assign it to a class that basically says it's unclassified or a class that says you know that's not determined yet. So let me show you what I mean. I'm going to enter the bill here. This one's going to be for the utility company. So now I'm going to say I'm going to call it Edison. Edison for the utility company. And then I'm going to say this is going to be a setup. We could set it up now. And if I go to the additional item here note that if I just don't assign a class at all then it'll go into unclassified. Now I'm gonna I would rather assign a class even though it's is not going to be classified at this point. But let's first not assign the class. Then we'll go back in there and adjust it. So I'm going to say okay and save it anyway even though it doesn't have a class. And then we're gonna we're gonna say that this is going to be for for the 1,000 for the total amount of the 1,000 for the utilities. That's the total amount here of the 1,000. And so it's not it's not allocated out yet. So then utilities utilities tab. I'm going to set that one up. One expense account even though it's going to be allocated to the four different departments. So that looks good. Looks good. I'm going to say okay now I haven't assigned a class here or there. What's going to happen when I do this? QuickBooks is going to create another column which is going to be called unclassified. So I'm going to say all right let's check that out. See what that looks like. Now it's telling me I didn't record in 30 days. It's also telling me hey you don't have a class assigned. I'm paraphrasing these messages. And I'm going to say okay. And so then we're going to go back on over and we'll go into the P&L. Update the data. And now it made this other classification as unclassified to the right. Now that could be useful because at the end of the month then we can then go back in here and and reclassify this one based on on the classification. We could do so by either double clicking on it and going into the data and reclassifying each section of the data. Or we can simply take that line item and and do a journal entry to apply out it out to a class. Decreasing the unclassified item and increasing the classified items as basically an adjusting journal entry which which might be the more appropriate way to do it. Now the other thing the other way we might want to do it I don't really like having this unclassified thing pop up because I'd like that to only pop up if there's an error. And I'd like to be able to assign a default class to every name. In this case to the vendor. So to do that I'd like to set up another class. I'm going to go to the lists drop down. I'm going to say we want the class list. And then I want another class that basically is telling me that I haven't assigned it yet. So not assigned or something like that. So I'm going to go to the class rise up. I'm going to say new. And then I'm going to say I want this one just to be called like unassigned. Unassigned class. And then I'm going to say okay. And then now you might say well what's the point of that? Why would I allocate it to it? Because I already know it's basically the same thing if I go back over here it says unclassified. Unassigned is you know is the same thing isn't it? But it's slightly different because this one I'm going to say that I want this reserved for when we make an error by not classifying. And I want the other to be one that we intentionally put to unassigned. So that we can then use the assignment with an allocation base at the end of the at the end of the period. I'd also like to be able to go to the vendors over here. Vendor center. And be able to assign a class to to all the vendors. And I can't do that if I can't if I tell someone who's doing the data input hey just don't classify those items. Then they're always going to get that pop-up and it could be a little bit more confusing as opposed to having the class assigned. And then anytime they get a pop-up saying something isn't assigned that's a problem that we should fix. So that's that then will make that pop-up useful to us. So I'm going to then say this is going to be Edison. And I'm going to assign a class to it now. So now I can say go to the additional information. We can assign the class of unassigned. Unassigned and okay. And then what I'm going to do is is if I entered the bill now if I go back into the profit and loss I can enter a class. If I double click on this item I'm going to reallocate it from unclassified which is very similar to what we called it as unassigned. But note the distinction. We're going to go into here double click on this one. And then once we entered Edison again the classification would automatically pop up as now unassigned. Which we will manually adjust at this point. So I'm going to adjust it to unassigned instead of unclassified. Then we'll save it and close it. I'm going to say yes and yes. And we change the class. Reflect. I think that's what we want. One or more items have not been assigned a class. And they should be assigned. Let's cancel this. This one down here I'd like to assign it a class. So I assigned it up here but we have to reassign it down here as well. So I'm going to assign it down there. Hold on. So let's save it and close it again. Save it and close it. And there we have it. Okay so now if I close this back out now it's an unassigned instead of unclassified. So if unclassified then pops up then it's basically an error category. Unassigned is not an error. That was what we actually assigned it to so that we could later go in and reassign it. Now if we were to later go in and reassign it there's two ways we could do it. If there was a bunch of stuff in in this area we could double click on it and go into each transaction again. Double click on it and break it out to the proper class. That could be a bit tedious and it also kind of distorts the the data input that has already been input. So I think the better way to do it would be to say okay here's the total in each item that I want to like reassign now according to my my adjustments. And then assign it with a journal entry. So I would assign it with a journal entry at the end of the month or the or the end of or the end of the year. I'll do it as of the end of the year now 12 31 and do our allocation. So that would be like an adjusting entry but now the adjusting entry isn't to assign out you know income statement accounts versus balance sheet accounts timing differences but rather to assign out the class allocation properly. So I'm going to then say okay adjusting entry let's go to the company drop down. We're going to say make journal entry. I'll do this periodically at the end of the period. I'm going to say at the end of the year this time 12 31 and I'm going to say this is going to be going from the utilities and it's going to be going out of the utilities for the 1000 that is assigned to the class of unassigned. And then we're going to say utilities I'm just going to put the utilities all the way down utilities utilities and then utilities are going to be assigned to the four classes breaking out those classes between the sales department 1 the sales department 2 the service department 1 and service department 2. Then if I go back on over here and just pick up the numbers we've got and they have the service departments first. Let's do it in the same order. I'll go service department 1 service department 2 so I don't like mess up the data input. I could still mess it up but I don't think I will. I'm going to do it right. So there we have it now it's in the same order. So now I'm just going to pull over the numbers which are 100 100 300 500. So service department 1 2 sales department 1 and 2. So it was 100 debit 100 and then debit 100 and then debit this one was 300 300 and then 500. And that should tie out that looks good. So now we just we just took it out of the unclassified reclassified it all with the same expense account utilities. So nothing's happening to utilities it's just going out and then back in to the utilities account. However now classified properly so the columns will then line up to to the columns. So same amount 1000. So I'm going to say save it close it we'll check it out. Saving it closing it checking it out. So now we still have the unclassified because we could see that it was assigned here. So if I double click on it you could see the activity going in and out of this unclassified area. But we also have it now broken out properly to these locations. So if you're doing if you're dealing with someone where you're doing the data input where somebody else is doing data input or you're doing the data input and you want you don't want to spend all day every time you have something to be allocating out to allocate it to whatever activity base you're supposed to allocate it out to. Especially if you're using multiple activity bases. I would assign another class which would be unassigned or something like that something different rather than not assigning a class at all. And then periodically adjust it at the end of the period at the end of the month or year during like the adjusting process. So that you get that proper allocation and you could just do that on a periodic basis.