Key takeaways
What this article covers, in order:
- Why categories matter more than people think
- A category list to start with
- Code the GST at the same time
- Five transactions that trip people up
- Equipment: expense or asset?
- What about loan repayments?
Here's how to categorise bank transactions: for each one, ask a single question: what did this money actually pay for, or come from? Then put it in the account in your chart of accounts that answers that question, code the GST correctly, and move on. A short, sensible list of categories and a weekly habit will do more for your books than a perfect list you never keep up with.
Why categories matter more than people think
Categories are how a pile of bank lines becomes a profit and loss report. If $3,200 of materials sits in "General Expenses", your P&L still balances, but you can't see that materials went up 40% this quarter while your prices didn't. And your accountant has to unpick it at year-end, which you pay for.
Good categorising doesn't mean lots of categories. It means the same thing goes in the same place every time.
A category list to start with
Here's a list that suits most Australian service businesses and sole traders. You can add to it later; it's much harder to clean up a list that started with 90 accounts.
| Category | What goes in it | Typical examples |
|---|---|---|
| Sales / Service income | Money earned from customers | Customer payments, card settlements |
| Other income | Income that isn't your main trade | Bank interest, small one-off rebates |
| Cost of sales / Materials | Things you buy to deliver the job or product | Timber, stock, parts, packaging |
| Subcontractors | People you pay to do part of the work | Another tradie, a freelance designer |
| Motor vehicle | Running a work vehicle | Fuel, rego, servicing, tolls |
| Rent | Premises costs | Shop or office rent, storage unit |
| Utilities | Power, water, gas | Quarterly power bill |
| Phone and internet | Communications | Mobile plan, NBN |
| Software and subscriptions | Monthly tools | Accounting software, design apps |
| Advertising and marketing | Getting new customers | Online ads, flyers, signage |
| Insurance | Business cover | Public liability, professional indemnity |
| Bank fees | Charges from the bank | Account fees, merchant fees |
| Repairs and maintenance | Fixing what you have | Fixing the van, a broken shop door |
| Office supplies | Small consumables | Paper, ink, postage |
| Travel | Business trips | Flights, accommodation |
| Owner drawings or director loan | Money taken out for personal use | Transfers to your personal account |
| Transfers | Money moving between your own accounts | Cheque account to savings |
Two rows on that list are not expenses at all: drawings and transfers. Keeping them out of your expenses is the single biggest fix most messy books need.
Code the GST at the same time
Each transaction should carry the right GST code when you categorise it: GST on income, GST on expenses, GST-free, or not reportable (transfers and drawings, for example). If you're registered for GST, getting this right line by line is what makes your BAS figures trustworthy. Code it correctly as you go; your BAS agent or accountant handles the lodgement.
If you're unsure how a particular item should be coded, flag it and ask rather than guessing the same way 50 times.
Five transactions that trip people up
Let's run through a handful from a real-looking week for Ava, who runs a dog-grooming van on the Sunshine Coast.
1. $215.40 at a hardware store. Clippers blades ($139.00) and a garden hose for home ($76.40). That's two categories in one payment. $139.00 goes to Materials or Equipment; $76.40 is personal, so it goes to Owner drawings. Total: $139.00 + $76.40 = $215.40.
2. $1,850.00 incoming from a customer. If Ava already raised an invoice for it, match the payment to the invoice rather than categorising it as fresh income. Otherwise the sale is counted twice.
3. $3,000.00 out to "A Nguyen Savings". That's Ava moving money to her own business savings account. It's a transfer, not an expense.
4. $96.80 to a fuel station. Motor vehicle. If she bought a pie and a drink in the same transaction, the food part is personal.
5. $11.00 "Monthly account fee". Bank fees. Small, but it's real money and it's a reconciling item if you skip it.
Equipment: expense or asset?
A $45 pair of scissors goes straight to expenses. A $12,000 hydrobath is a different animal: it's equipment that lasts years, so it's usually recorded as an asset on the balance sheet and written off over time. Where the line sits, and how the write-off works for your situation, is a question for your accountant. For day-to-day bookkeeping, the rule is simple: if it's big and lasts more than a year, don't just throw it into "Repairs" and move on. Put it in an equipment or asset account and flag it.
What about loan repayments?
A loan repayment is usually two things stuck together: a principal portion that reduces the loan (a balance sheet item) and an interest portion that's an expense. If Ava's van loan repayment is $640.00 and the lender's statement shows $512.30 principal and $127.70 interest, those are the two lines you'd record. Check: $512.30 + $127.70 = $640.00. Coding the whole $640 as an expense overstates costs and leaves the loan balance wrong forever.
A weekly routine that actually sticks
Categorising 15 transactions takes about ten minutes. Categorising 400 takes a weekend and a bad mood. Here's a routine that works for most owners:
- [ ] Same day every week (Monday morning or Friday arvo, pick one)
- [ ] Open the review list and work top to bottom
- [ ] Match customer payments to invoices and supplier payments to bills first
- [ ] Categorise the rest, splitting any mixed business and personal payments
- [ ] Check the GST code on each line
- [ ] Park anything you're unsure about in one place, with a note, and ask your bookkeeper or accountant in one batch
- [ ] Glance at the P&L: does anything look absurd?
That last check is quick and catches a lot. If "Advertising" suddenly shows $9,000 for the month, you probably coded a transfer in there by mistake.
Keep the list tidy over time
A few habits stop the list from sprawling:
- Don't create a new category for a one-off. Use the nearest existing one.
- Name categories plainly. "Motor vehicle" beats "MV Exp - Gen".
- If two categories are always used for the same thing, merge them.
- Use descriptions or notes for detail rather than new accounts.
How HelloBooks helps
Bank-feed and CSV transactions in HelloBooks land in a review list where you confirm or change the category, so your weekly routine has one obvious place to start. On Pro (A$30 a month) AI auto-categorisation suggests categories for you; on Free you get free AI credits to get started, and if credits run out the AI pauses while your books keep working. Your P&L, Balance Sheet and Cash Flow reports update from the same categories, and you can invite your bookkeeper, BAS agent or accountant into the same books to check your coding. More on automated bookkeeping and our bookkeeping features.
FAQs
How many expense categories should a small business have?
For most small service businesses, 15 to 25 is plenty. Add more only when you genuinely need to track something separately.
What if one payment covers business and personal items?
Split it. Record the business part in the right expense category and the personal part as owner drawings (or a director loan for a company).
Should I categorise transactions daily or weekly?
Weekly suits most owners. Daily is fine if you have high volume. Monthly works only if your volume is low; otherwise it becomes a slog and mistakes creep in.
Do I need to code GST on every transaction?
If you're registered for GST, yes, each line needs the right code. Transfers and drawings are generally not reportable. If you're not registered, code everything as not registered or no GST, whichever your software uses.
What's the difference between categorising and reconciling?
Categorising says what each transaction was. Reconciling checks that the transactions in your books agree with the bank's balance. You need both.
Pick a short list, use it the same way every week, and ask about the weird ones in a batch. That's how clean books happen.
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