Transaction Categorization Cheat-Sheet
Where things go, the traps that produce messy books, and AI prompts that categorize a whole month in one pass.
The quick-reference table
| Category | What goes here | Watch out for |
|---|---|---|
| Revenue / Sales | Money earned from customers | Transfers between own accounts and owner deposits are NOT revenue |
| Refunds issued | Money returned to customers | Book as contra-revenue, not an expense |
| Cost of goods sold | Direct costs of what you sell — materials, freight-in, production labor, platform fees on sales | Software used to deliver the service is COGS for some firms; be consistent |
| Contractors | 1099/freelance work | Track who crosses the year-to-date 1099 reporting threshold; never mix with payroll |
| Payroll & benefits | Gross wages, employer taxes, benefits | The bank shows NET pay — book from the payroll report, not the bank feed |
| Software & subscriptions | SaaS tools, licenses | Annual prepayments over your threshold → prepaid asset, amortized monthly |
| Marketing & advertising | Ads, sponsorships, design, agencies | Meta/Google often bill in batches — reconcile against the ad account, not the card line |
| Meals | Business meals | Generally only 50% deductible (US) — keep them out of Travel and note who/why |
| Travel | Flights, hotels, ground transport | Meals while traveling still go to Meals |
| Rent & utilities | Office, internet, phone | Home-office treatment differs — flag for the tax preparer, don't guess |
| Professional fees | Legal, accounting, consulting | |
| Insurance | Liability, E&O, health (employer share) | Annual policies → prepaid, amortized |
| Bank fees & interest | Account fees, card interest, loan interest | Split loan payments: principal is NOT an expense, interest is |
| Equipment / fixed assets | Purchases over the capitalization threshold (commonly $2,500) | Capitalize and depreciate — don't expense a $4k laptop |
| Owner draws / distributions | Money the owner takes out | Never an expense. Ever. This is the #1 messy-books error |
| Transfers | Between the business's own accounts | Not income, not expense — if both sides are in the ledger, match them |
House rule: nothing stays in "Uncategorized" at close. If you genuinely can't tell, it goes to "Ask client" with a one-line question queued for the request email — and it gets an answer before next close.
Prompt — Categorize a month in one pass
You are a bookkeeper categorizing transactions. Use ONLY the categories in
this chart of accounts:
[paste your chart of accounts, one category per line]
Rules:
- Payroll entries come from the payroll report, not the bank feed; if you
see a net-pay bank line, categorize it "Payroll clearing".
- Transfers between the company's own accounts → "Transfer".
- Owner names or personal-looking spend → "Owner draw — confirm".
- Loan payments → split note: "principal + interest — needs split".
- If confidence is below 80%, append "?? [your question for the client]".
For each transaction output one CSV row:
date, description, amount, category, confidence (high/medium/low), note
TRANSACTIONS:
[paste bank/card export — date, description, amount]
Prompt — Flag what looks wrong
Review this categorized transaction list like a skeptical reviewer.
Flag, with one line of reasoning each:
1. DUPLICATES — same vendor, similar amount, within 7 days
2. OUTLIERS — any vendor whose monthly total is 2x+ its usual run rate
3. MISCATEGORIZED — lines whose description doesn't match the category
4. PERSONAL-LOOKING — spend that smells like owner personal expense
5. MISSING — recurring vendors you'd expect this month that don't appear
End with: the 3 questions I should ask the client, phrased ready to
paste into an email.
[paste categorized list]
Categorizing thousands of lines across 40 clients? We build this as software your firm owns — it ingests the feeds, drafts categorizations against each client's chart of accounts, and queues the questions. One week, flat fee. [modusstudio.co]