Classes-How they differ from account numbers and items

Several readers have asked for a bit more clarification regarding when to use classes versus adding new account numbers or items. So here are just a couple of points to remember.

Account numbers are used to track revenues, expenditures, assets and liabilities to show on your financial statements.

Items are used to identify the specific things you receive donations for or to track very specific expenses. They are used to bill your donors or members and to allocate expenses to programs and grants. For example, you may have items set up for three different types of donations which feed into your Donations account. Likewise, your Utility account may have Water, Electric, and Gas items. Reports can be run to show all costs to specific items.

There will be quite a bit of redundancy between the account numbers and the items. You can limit the number of accounts, by putting the details in Items. If you need to see how much you spent on electricity, a report on the Item Electricity can be run without having to have a separate account on the financial statements. If you want to see it on the income statement (statement of activities), you can set up a subaccount under Utilities called Electricity. 

Classes are used to allocate and summarize all the money received and the money spent for a particular program or fund.

For example, if you wanted to charge a literacy program for 50% of the electric bill, you would code the expense to the Utilities account using the Electric item and the Literacy class. A Class report would then tell you how much of the electric bill was charged to a program, but not what your total electric bill was.

Clear as mud, right?  Just remember:

Account Numbers=Financial Statements

Items=Details for invoices & bills

Classes=Programs or Funds

.