We all know the famous expression, “Time is money.” This is doubly true for accountants and bookkeepers.
Every minute spent manually resolving uncategorized transactions is a minute taken away from other high-value tasks that could be done.
The challenge of uncategorized transactions is real, and the time they steal can add up quickly.
In this article, you’ll find five practical tips for managing uncategorized transactions and streamlining your bookkeeping workflow. By implementing these tips, you can free up valuable hours and focus on what matters most—serving your clients strategically and growing your firm.
TL;DR
- Uncategorized transactions are income or expenses that haven’t been assigned to the appropriate account in a client’s books.
- To resolve them, review the transaction details and supporting documents, ask the client for clarification when needed, assign the correct category, and include outstanding transactions in your month-end review.
- To manage them more efficiently, accounting and bookkeeping firms can centralize transaction review, batch client questions, automate follow-ups, and review transactions regularly.
- To prevent a backlog, make transaction review a recurring part of the bookkeeping and month-end close process instead of waiting until the end of the month to clean everything up
What Are Uncategorized Transactions?
As the name implies, uncategorized transactions are income or expenses that haven’t been assigned to the appropriate account or category in a client’s books. They’re floating entries without a specific label, such as “rent,” “travel expenses,” or “salaries.” This lack of categorization makes it difficult to accurately track your clients’ income and expenses or reconcile their accounts.
In QuickBooks Online, for example, transactions that haven’t been properly categorized may appear under accounts such as Uncategorized Income or Uncategorized Expense until someone reviews and assigns them to the appropriate account.
There are several reasons this can happen.
A transaction may have an unclear bank description, making it difficult to identify what the purchase was for. A receipt or invoice may be missing. Or your client may have made a purchase that you simply don’t have enough information about.
For example, suppose you see a $600 transaction from Amazon in your client’s books. Was it for office supplies, computer equipment, or something personal?
Without additional context, you can’t confidently categorize it.
That’s when you may need to ask your client for more information or supporting documentation before deciding where the transaction belongs.
And when this happens across dozens of transactions and multiple clients, resolving uncategorized transactions can become a time-consuming part of your bookkeeping process.
Uncategorized transactions can steal valuable time from you and affect your firm in other ways, as you’ll see below.
Why Should You Resolve Uncategorized Transactions?
a. Inaccurate financial reporting
Uncategorized transactions can skew financial statements, making it difficult to generate accurate reports. Because these statements (including the balance sheet and income statement) are inaccurate, they can mislead clients about their profitability, solvency, and overall financial position. It can also make it difficult for you to complete specific tasks.
Imagine creating a budget for a client when a significant portion of their income and expenses remain uncategorized. It will neither be easy nor accurate.
b. Missed tax deductions:
Uncategorized transactions, particularly those related to business expenses, can easily slip through the cracks come tax season. This can lead to clients missing out on legitimate tax deductions, resulting in them overpaying taxes.
For instance, you might overlook an uncategorized office supply purchase during tax preparation. This oversight could cost the client valuable deductions that could have lowered their tax liability.
c. Decision-making challenges
To make informed financial decisions, you need financial data. Unfortunately, uncategorized transactions compromise this data. As a result, clients need a clearer understanding of their spending habits and financial standing.
This can lead to poor investment choices and missed growth opportunities.
For example, say your client recently experienced a surge in sales, leading to a high volume of transactions. You left out many transactions due to some online payment descriptions’ sheer volume and complexity.
Now, these uncategorized transactions distorted the company’s financial statements, making it difficult to assess profitability and track key metrics like cost of goods sold. Clear financial data could have helped the company’s ability to identify areas for cost optimization and make informed decisions about future investments.
d. Client dissatisfaction
These kinds of transactions can cause your clients to feel dissatisfied and affect your relationships. They might feel you’re not managing their finances well or not providing them with the level of service they expect.
Also, the back-and-forth communication required to clarify categorizations can be time-consuming and create friction in the client relationship.
Consider a situation where a bookkeeping error caused by uncategorized transactions results in a client missing a critical funding deadline. Or they incur tax penalties due to missed deductions. The client will certainly be unhappy with you and might even leave your firm.
In essence, you can’t afford to treat uncategorized transactions with levity. They are a serious issue requiring you to be proactive.
How to Fix Uncategorized Transactions
The exact process may vary depending on the transaction and the accounting software your firm uses, but resolving an uncategorized transaction typically involves the following steps.
1. Review the Transaction Details
Start with the information that’s already available.
Look at the date, amount, bank description, payee, memo, and any attached documents. Sometimes, these details are enough to determine what the transaction was for.
2. Check for Supporting Documents
Look for receipts, invoices, bills, or other documentation that could explain the business purpose of the transaction.
Supporting documents can give your team the information they need to assign the transaction to the appropriate account without contacting the client.
3. Determine Whether You Need More Information
If the transaction is still unclear, don’t guess.
Identify exactly what information you need from the client.
Instead of asking, “What is this transaction?” give them enough context to answer quickly, such as the vendor, date, and amount.
4. Ask the Client for Clarification
Send the question to the client and request any supporting documentation you need.
For example:
“There’s a $600 Amazon transaction from September 14. Can you confirm what this purchase was for and upload the receipt?”
The easier the question is to understand, the easier it is for the client to give your team a useful answer.
5. Categorize the Transaction
Once you have enough information, assign the transaction to the appropriate account based on its business purpose and your firm’s accounting judgment.
If your accounting workflow software integrates with your general ledger, your team may also be able to complete parts of this process without jumping between multiple systems.
6. Complete Your Review
Before finishing the books, review outstanding transactions to make sure unresolved items haven’t been overlooked.
This is particularly important during month-end close, when your team needs to know which transactions are complete and which still require client input.
Managing Uncategorized Transactions: 5 Time-Saving Tips
Fixing one uncategorized transaction isn’t particularly difficult.
The challenge is doing it repeatedly across dozens or hundreds of transactions for multiple clients.
That’s why the process your firm uses matters.
Here are five effective tips to manage uncategorized transactions and save precious time.
1. Centralize Transaction Review Instead of Using Spreadsheets
Spreadsheets may work when your firm has a handful of transactions to categorize.
But they become difficult to manage as your client base grows.
Your team may have to export transactions from QuickBooks Online, add them to a spreadsheet, send questions to the client, track their responses, and then return to QuickBooks to make the necessary changes.
That creates more manual work and more opportunities for information to get lost.
A centralized transaction review workflow keeps the transaction, client question, supporting information, and resolution process together.
For example, Financial Cents’ Month-End Close feature includes Transaction Review, which helps firms identify QuickBooks Online transactions that need attention.
Your team can review issues such as uncategorized transactions, missing payees, missing classes or locations, and missing attachments as part of the same month-end close workflow.
This reduces the need to build separate spreadsheets just to keep track of what still needs to be reviewed.
The cost extends beyond the time spent updating spreadsheets. A manual month-end close process also creates delays, rework, inconsistent reviews, and additional client follow-up across the firm.
2. Use Month-End Close or Transaction Review Software
Consider using an uncategorized transactions management system to manage these transactions. These systems have features that simplify the identification and categorization of transactions, reducing the time and effort of the process.
The Month-end close (MEC) feature comes into play here again. We designed it specifically for accountants and bookkeepers to simplify the categorization process. With a Month-End Close software, you can categorize transactions in seconds and free up valuable time for more strategic tasks.
Some of the MEC features include:
- Effortless categorization: Its intuitive interface makes it easy to categorize transactions.
- Seamless integration with QuickBooks: MEC integrates with QuickBooks so you can keep a central record of all your client’s transactions, notes, and documents.
- Client collaboration: It facilitates collaboration between you and your clients by allowing you to send them requests about certain uncategorized transactions and allowing them to respond to those requests, all within the platform. They can upload necessary documents or files that provide more context to help you with the categorization.
3. Batch-Categorize Transactions
Imagine receiving 15 separate emails from your accountant about 15 different transactions.
Even a responsive client may put off answering them.
Instead, group unresolved transactions together and let clients answer several questions at once.
This reduces the number of messages going back and forth and gives clients one place to work through outstanding questions.
With Financial Cents’ Transaction Review, for example, firms can send transaction questions to clients rather than manually copying transaction details into an email or spreadsheet.
Once the client provides the information your team needs, you can return to the transaction and complete the review.
The goal isn’t to blindly categorize similar-looking transactions in bulk. It’s to make the review and clarification process more efficient while still giving each transaction the attention it needs.
4. Set up Auto Reminders for Clients
Sometimes, clients need to be reminded to respond to your requests, but you may not have time to send reminders manually. This can cause delays and disrupt your workflow.
To resolve this, use Financial Cents’ auto reminders feature. It lets you send follow-up messages to your clients at set intervals:
These gentle nudges can significantly improve client response rates and keep the categorization process moving forward.
Transaction rules solve only part of the problem. These bookkeeping automation examples show how firms can also automate recurring work, document requests, reminders, deadlines, and team coordination.
5. Schedule Regular Review Sessions
Dedicate specific times within your week or month to reviewing and categorizing uncategorized transactions. Depending on the volume of transactions you handle, this could be a daily or weekly task. Stick to the schedule you choose, as consistency is very important.
Doing this regular review prevents transactions from piling up and creating a backlog. Instead, you’ll be able to stay on top of these tasks and help your clients maintain accurate financial records.
Pairing these reviews with a periodic QuickBooks cleanup keeps small categorization issues from compounding into a year-end mess.
Use Financial Cents To Manage Your Workflow and Uncategorized Transactions
Uncategorized transactions can drain your time and resources, hindering your ability to deliver exceptional service to your clients. But there’s a solution:
Financial Cents is an accounting practice management software with additional features that help simplify the transaction categorization process. How? It makes it easy to ask clients to clarify transactions, automate manual processes, and allows you to batch-categorize transactions.
Furthermore, Financial Cents helps you manage your workflow and make your firm more efficient with its templates, customer relationship management (CRM) features, and automation abilities.
Frequently Asked Questions
The Financial Cents Editorial Team creates practical guides, templates, and resources for accounting, bookkeeping, and tax firms, drawing on our in-house experts and the firm owners we work with.
Share this article
Excellent article!