Updated: Aug 31, 2022
It’s always important to categorize transactions, but manually categorizing each transaction takes time. If every day brings several dozen transactions into QuickBooks Online for your business, try our suggestions for automation below.
One of the cardinal rules of accounting is this: Review new transactions every day. If you wait until too many accumulate, you may be less likely to review them thoroughly, which can create inaccuracies in your accounting records.
Correct categorization is essential: without it, your income taxes and financial reports will not be accurate. The good news is that QuickBooks Online makes this process easy, even if you're receiving multiple transactions a day.
QuickBooks Online allows you to accelerate the categorization process by automating it through the use of Rules. That is, if a transaction contains a specific piece of information, such as a name or dollar amount, QuickBooks Online allows you to indicate how it should be categorized through the use of artificial intelligence. Automatic categorization is one of the most common issues Account Ability Consulting is requested to correct. That said, this kind of automation can save you time and may even prevent errors – as long as you use it carefully. Here’s how it works.
Defining Your Rules
We’ll use an easy example to explain how QuickBooks Online’s Rules work. Let’s say your shipping costs have started to increase lately, and you want to make sure you’re seeing any UPS transactions that go above a specified dollar amount, and that they’re categorized accurately.
Hover your mouse over Transactions in the toolbar and click on Banking (note: you'll need to have your QuickBooks and bank feed connected in order for this to work. To start downloading your bank transactions automatically to QuickBooks Online, follow these instructions). Then, select an account to work with by clicking on it, and make sure the For review bar is highlighted.
Click on a transaction to open it. (If you’ve never explored what you can do with a downloaded transaction, study this box carefully while you’re there, and contact us with any questions.) On the bottom line, you’ll see a link labeled Create a rule. Click on it, and a panel slides out from the right, as pictured below:
The upper half of the Create rule panel
This portion of the Create rule panel is fairly self-explanatory. Give your rule a descriptive name (we named this rule "UPS 25 Plus") and indicate whether it should be applied to Money in or Money out. If you want to select a specific bank account or card, click the down arrow in the field to the right and select it. Otherwise, choose All bank accounts. Next, decide whether a transaction has to meet Any of the conditions you’re going to specify or All of them. In this case, we want All.
Now you have to describe the conditions under which a transaction will be affected. We want transactions whose Description Contains The UPS Store. We also want to identify purchases from The UPS Store whose total is more than $25. So you’d click + Add a condition. In the row that opens, click the down arrow in the Description field and select Amount. Click the down arrow again in the next field and choose Is greater than. The final field in the row should contain 25.00.
You could keep adding conditions, but that’s all we need for this rule. You can click Test rule if you want to find out how many transactions in your For review list would meet your specifications.
Next, you want to Assign attributes to the transactions selected. Your options here are Transaction type, Category, Payee, Tags, Class, and Memo. The first two are required and the third is recommended. The last three are optional, however, we encourage you to always enter something in the payee field. If something goes awry with your automation, troubleshooting after the fact becomes much more difficult when your data is limited.
If you want QuickBooks Online to automatically confirm transactions this rule applies to, click the Auto-confirm button so it’s showing green. This is where you'll need to be careful, though--if you choose this option, your matching transactions will be modified to meet your criteria and moved directly into the Categorized queue. You won’t see them in For review. So consider this carefully.
When you’re done here, click Save.
The lower half of the Create rule screen
Warning: QuickBooks Online allows you to create new categories directly from this window. But accurate categorization is so critical that we’d rather you schedule a session with us to go over your list of categories and make any modifications necessary.
To recap: Any expense over $25 that comes into your For review queue whose Description reads The UPS Storewill be automatically categorized and moved into the Categorized queue.
QuickBooks Online’s Rules can save you time, but if they’re not created correctly, you may have errors in your company file without even knowing it. For example, for any vendor you purchase different types of items from (say, you shop at Target for both your office supplies and customer gifts), automation could lump these different business expenses into the same category. We recommend that you let us help you set up automatic categorizations from the start to avoid this hassle.