Automatic Categorization

What is automatic categorization?

Automatic categorization is a feature in accounting software that assigns expense categories to transactions based on vendor name, transaction description, or learned patterns. When your bank feed imports a payment to your internet provider, the software automatically codes it to utilities or internet expense. This reduces manual data entry and speeds bookkeeping.

Setting up categorization rules

Most software lets you create rules that match vendor names or keywords to specific categories. When you categorize a transaction, the software may ask if you want to apply that categorization to future transactions from the same vendor. Build your rule library over time. Good rules dramatically reduce the time spent categorizing transactions each month.

Reviewing auto-categorized transactions

Automation is not perfect. Review auto-categorized transactions periodically. The same vendor might supply both office supplies and computer equipment, requiring different categories. Unusual transactions may be miscategorized. Some businesses review all auto-categorizations before accepting them. Others spot-check or review exception reports. Find the balance between efficiency and accuracy that works for your situation.