Categorizing Transactions in QuickBooks Online: Tips and Tricks

Managing your transactions efficiently is essential for maintaining accurate financial records in QuickBooks Online (QBO). If you code transactions poorly, your financials will not reflect what is happening with your business. In this article, we’ll discuss tips and tricks for categorizing transactions, creating bank rules, matching transactions and some key items to look out for.

Coding Transactions Individually

To categorize a single transaction in QBO:

  1. Go to the “Banking” tab on the left-hand side of your dashboard.
  2. Choose the account that contains the transaction you want to categorize.
  3. Click on the transaction to open the details.
  4. Select the appropriate category from the “Category” dropdown list.
  5. Add a description, if necessary.
  6. Ensure the vendor is correct and listed on Every transaction! This will be helpful later especially if you pay contractors or just want to have more insight into expenses.
  7. Just because a transaction is green and QBO is giving you a suggestion does NOT mean that transaction is correct. Always 2x check.
  8. Click “Add” to save your changes.

Adding New Vendors or Customers in the Bank Feed

To add a new vendor or customer directly in the bank feed:

  1. Click on the transaction that needs a new new vendor or customer.
  2. In the “Payee” field, start typing the new vendor or customer name.
  3. Select “Add [vendor/customer name]” from the dropdown list.
  4. Complete the required fields in the “New Vendor” or “New Customer” window.
  5. Click “Save” to create the new vendor or customer and associate it with the transaction.

Creating Bank Rules for Recurring Transactions

Bank rules help save time by automatically categorizing recurring transactions based on specific criteria. To create a bank rule:

  1. Go to the “Banking” tab and click on “Rules” in the top-right corner.
  2. Click “New Rule” to open the rule creation window.
  3. Enter a name for the rule and define the conditions based on the bank text or other criteria. I typically name the rule based on the vendor.
  4. Under “include the following” select “bank text” from the drop down and then copy + paste exact bank text related to the transaction. Do not include transaction specific numbers and only include the vendor description from the bank text.
  5. Select the appropriate category and payee for transactions that meet the conditions.
  6. Click “Save” to apply the rule to future transactions.
  7. I personally do not like to leave the “auto add” feature on because mistakes happen and I want to have a chance to review from the bank feed.

4. Matching Transactions

Matching transactions in QBO helps you reconcile credit card payments, bill payments, and invoice deposits:

  1. In the “Banking” tab, locate the transaction you want to match.
  2. Click on the transaction to open the details.
  3. If QBO suggests a match, review the details and click “Match” to confirm.
  4. If no match is suggested, click “Find Match” to search for potential matches manually.

Be sure that you check for the correct match especially if there is more than one transaction. If a match is available and you decide to code the transaction, you will likely double code transactions and then you will have problems when it is time to reconcile.

Accrual-Based Accounting Tips

When working with accrual-based accounting books, be mindful of prepaid expenses, potential accruals from the previous month, and deferred revenue:

  1. Review transactions to identify prepaid expenses. Some examples include Insurance expenses, online services over $500 and conferences
  2. Review for deferred revenue, and allocate them to the correct period as needed. Just because you received a deposit does not mean that the revenue was earned in the current period.
  3. If you have an expense that comes through that is actually related to a previous period, you may need to go back and create a journal entry to accrue for that expense in the prior period.
  4. Regularly review your financial reports to identify potential accruals and adjust your records accordingly.

Using Bank Text to Search for Vendors with Google

If you’re unsure about a transaction’s vendor, use the bank text to search for the vendor using Google:

  1. Copy the bank text from the transaction details in QBO. (it is usually best to remove any transaction numbers)
  2. Paste the text into the Google search bar and perform a search.
  3. Review the search results to identify the vendor and update the transaction accordingly.
  4. If you found the vendor and still don’t know how to code (or you can’t find the vendor) then be sure to code to uncategorized expense and review with the card holder.
  5. By categorizing the expense, even as uncategorized or ask my accountant, this allows you to continue on with the financial statement close at the end of the month by reconciling the bank feed.

By following these tips and tricks, you’ll be well-equipped to categorize transactions efficiently in QuickBooks Online, ensuring your financial records are accurate and up-to-date.