You can use class tracking to see how different areas of your business are performing (such as departments, cost centers, locations or even by projects or sales people). This way, your reports help you make proactive business decisions.
In QBO the categories are named Classes and Locations
In Xero they are Tracking Category 1 and Tracking Category 2.
Why use classes?
Classes provide a system for categorizing transactions that goes beyond the basic ways of assigning transactions to expense or income accounts.
For example, suppose you have a consulting business and an installation business. Class tracking is ideal for you if it is typical to have purchases and sales that include both types of work. By specifying the appropriate class, you can run a Profit and loss by class report that will tell you if your consulting business is more or less profitable than the installation business.
Examples of classes
Departments
Enterprises
Properties
Construction industry standard categories (General, Site Work, Concrete, Masonry, and so on)
Manufacturers
Partners
Product lines: For example, a farmer might create a class for each enterprise: “Corn,” “Hogs,” and “Soybeans.”
QuickBooks: How to use classes and locations?
Turn on class tracking (in Company Settings) under the Advanced section.
Select Track classes and Track locations.
Note: DataQlick assigns classes to the entire transaction.
Add classes that are meaningful to your business.
When you enter invoices, checks, credit card charges, or other transactions, assign a class to the transaction (or detail lines of the transaction).
Create reports by class.
You can find out more about QBO classes and locations https://community.intuit.com/articles/1146024-set-up-and-work-with-class-and-location-tracking
Xero: How to use Tracking Categories
Xero uses tracking categories and options instead of department codes or cost centers. This keeps your chart of accounts manageable.
You can have two active tracking categories.
You can have up to 100 tracking options for each tracking category.
A tracking category needs at least one tracking option to assign tracking to a transaction.
You can set up a tracking category with tracking options any way you want. See an example below.
In Xero General Settings -> Organization -> Tracking
Click + Add Tracking Category.
Name the tracking category and options.
Click Save.
You can find out more about Xero tracking categories: https://central.xero.com/s/article/Set-up-tracking-categories-US
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