Bookkeepers categorize all transactions – the reason for this is that it assists in identifying tax concessions which may be applicable to your business, making auditing easier.
Transactions are categorized under the following five types of accounts:
Ensure (where possible) all payments are made via Credit or Debit card as cash payments are quite challenging to keep track of as it would not be reflected in the bank transactions list making it difficult to claim as a business expense.
Cloud-based Software does a lot of the work for you by categorizing transactions automatically. If we use QuickBooks for example, any expense or check entries which have no account entered are assigned to uncategorized income or expense. Uncategorized income and expense are accounts made up by Intuit(QuickBooks) for the bank feeds process. It is important to look at the Uncategorized account and clear out transactions withheld as and when they appear.
Key benefits of categorizing transactions are:
- Key data at your fingertips
- More focus on your business
- More money for your business
- Never Lose any data
In conclusion, Bookkeepers categorise all the transactions, and the same should be followed by the business owner.