How Transaction Categorization Works
By Cole Kline, Founder, Edge Operations Managers
Categorization means assigning each transaction to an account in your chart of accounts, such as fuel, software or materials. It is what turns a list of bank activity into books you can read.
How it works
- Transactions come in from your bank and credit card feeds
- Each one is assigned to an account
- Recurring vendors are categorized the same way every time
- Unclear items are flagged so you can say what they were
Why consistency matters
When the same kind of expense lands in the same account every month, you and your CPA can compare months and spot changes. Inconsistent categories make that hard.
What a bookkeeper may ask you
- What a specific charge was for
- Whether a transfer was between your own accounts
- Whether a purchase was business or personal
Your CPA decides tax treatment. The bookkeeper keeps the categories consistent.
Edge bookkeeping is reconciliation and categorization only. It is not accounting, tax preparation, tax advice or CPA work.
Related: Virtual bookkeeping services