Categorizing transactions in Quickbooks & other bookkeeping software is typically left for your Bookkeeper and Accountant to code. Bad categorization will lead to a heap of trouble down the line and you may be paying the IRS more than necessary. Think of the transactions on your bank statement as something set in stone. Where you, your bookkeeper, or your accountant decide to code varies a lot.
The coding of expense categories and COGS below is with the understanding that the business entity is an S-Corp. Categorizing transactions in Quickbooks will differ significantly from one entity to another and the type of products or services you provide. We placed every expense category in BOLD and followed it with COGS in BOLD. Again, the categorizing transactions or also known as coding is an example of an LLC but will be different for other entities.
Additional Resources:
Cool. Why is a tech company discussing the categorizing transaction in Quickbooks?
www.getdivvy.com is free software for managing your expenses more effectively than the old school credit card and debit transactions. Bonus, they create virtual and physical cards for protecting against fraud and controlling costs when issuing cards to employees. Check out our Divvy blog post to see how to use it effectively.
Expense Categories:
Advertising
Job postings, Yelp advertising, purchasing images for your website and Google PPC are just a few service examples that can be categorized as advertising
Assets
Talk to your accountant as to what is an asset. Example: One computer purchase is not an asset. However, a large amount of computers is. This would be considered an asset. Note: A good rule of thumb is anything under 5k is not an asset. Assets show up on the Balance Sheet. Most expenses show up on the P&L statement.
“Automobile” AKA “Car & Truck”
Employees who are making service calls can have their gas expenses paid with the company credit card. Perhaps, they parked in a private parking lot or went through a toll road. Parking & Tolls and Gas can be sub-categories of “automobile”
NOTE: Do I use standard mile deduction?
NOTE: Does that mean I don’t need to track my miles?
Bank Service Charges
This is not interest from credit cards but rather fees accumulated for not having enough money in your account or withdrawing from a third party ATM.
Continuing Education – Training
The costs associated with education. ie Books, Classes, etc
Hardware – NFR
Hardware that is purchase but Not For Resale purposes
Insurance
Common insurance write offs are for General Liability (Errors & Omissions) There are also newer insurance to consider such as Cyber Insurance.
“Finance Charges” AKA “Interest Fees”
The bookkeeper should be tracking interest that are on full display in your monthly statements for credit cards, business line of credits, etc
Meals & Entertainment
These are ordinary and necessary meals during travel for your self-employment work. They can also be meals you pay for when meeting clients or business associates. The meals and related trips must have a clear business purpose. Costs must be reasonable. Always refer to the IRS website for the latest rules on meal deductions. Be careful about transactions from Uber vs Uber Eats. They may be coded incorrectly.
Msc
Usually the bookkeeper doesn’t know what the item should be coded as and therefore, it’s temporarily coded as misc.
Office Expenses – IT Supplies
-
- Hardware – NFR
- Domain & Hosting GoDaddy Domain Hosting, NameCheap Domain Hosting, SiteGround Website Hosting, Microsoft Office 365 can also go here if we did not have “Dues & Subscriptions” category
- Postage & Delivery
- Dues & Subscriptions (SaaS)These coding categories are all sub-categories of Office Expense – IT supplies. While Dues & Subscriptions are for renewing software licenses, something like Gusto and SurePayroll service payroll services are not categorize here. Same with VoIP phones. They both belong in there own separate categories not related to Office Expense – IT supplies. Also, one time desktop (Office 2007, Quickbooks 2017, etc) license belongs under “Taxes & Licenses”
Background Check
Belongs under Office Expense
Payroll Fees
SurePayroll and Gusto payroll services belong here.
Payroll Taxes
Professional Services & Legal Fees
Bookkeeper – Accountant – CPA (The bookkeeper may not be incorporated)
Sales and Marketing Consultant
-
- Because NetworkAntics is incorporated, we don’t get a 1099 issue from other businesses
- Are freelance LLC categorized differently?Important note regarding 1099/subcontractors. Anyone who provides you a service is 1099. DON’T CONFUSE THE ABOVE WITH COGS – CONTRACT LABOR. Professional Services are advertising or marketing for your business. They don’t conduct any NA business.
- Rent & Lease
- NOTE: Expensed through business when Business Related
-
-
- Equipment rent and lease
- Building rent and lease
- Portable storage units
- Small machinery and appliance rentals for business
- Warehouse space
- Showroom space
- Office buildings
- Retail shops
- NOTE: Not expensed through business
- House rental
-
- Repair & Maintenance
- NOTE: Expensed through business when Business Related
- Plumbing repairs
- Routine servicing for heating or air conditioning
- Painting
- Cleaning gutters
- Light fixture repairs
- NOTE: Expensed through business when Business Related
-
-
- Costs for repairs and maintenance, but for office or property that’s not your home. This doesn’t include renovations or improvements.
- Minor roofing, HVAC upgrades for a business space
- Computer repair and upgrade visits from technical specialists
- Floor refinishing for a business space
- Carpet and furniture cleaning in a business space
- Janitorial services for a business space
- Paint, spackle, and electrical work
-
- NOTE: Not expensed through business (using mileage calculator)
- Oil Change
- Car repair
- Car Wash
- Taxes & Licenses
- NOTE:
- Any time I renew my Business license
- Any time I purchase software
- Note: This is not for subscription software. Subscription software goes under “Dues & Subscriptions“, a sub-category of Office Expenses – IT Supplies.
-
This is for a one time desktop license. Office 2007, Quickbooks 2017, etc
- Any business taxes
- NOTE:
- Telephone
The expenses on your telephone, mobile and fax usage are accounted as telephone expenses. - Travel
-
- Uber is business travel
- Lyft is for personal shenanigans
-
- Utilities
- Wages
This is the cumulative net payroll each week for all your employees. I believe you can import into your Books from your payroll system.
(COGS)
- “Subcontracted Services” AKA “Contract Labor”
- NOTE:
- 1099/Subcontractor
- Freelance LLC
- “Materials & Hardware”
- NOTE:
- Items purchase for use in a client or customer project
- “Software for Resale – SaaS Stack”
- NOTE:
- Items white labeled for use in supporting client or customer
- THIS IS A BIG ONE FOR MANAGED IT SERVICE
- Items white labeled for use in supporting client or customer
- NOTE:
- NOTE:
- NOTE:
Balance Sheet (Assets and Liabilities)
Assets – Furniture and Equipment
Talk to your accountant as to what is an asset. Example: One computer purchase is not an asset. However, a large amount of computers is. This would be considered an asset. Note: A good rule of thumb is anything under 5k is not an asset.
Assets – Cash in Checking and Savings Accounts
These checking accounts totals will accumulate in “Total Assets” under the Balance Sheet
Liabilities – Credit Card Debt and Business Line of Credit
Any money that has not been paid off on your credit card will be a liability for your end of year Balance Sheet.
Liabilities – Draw
Talk to your accountant as to what a draw is.
Expense for (Not LLC) Self Employed
Categorizing Transactions in QuickBooks & other bookkeeping software Summary
Categorizing transaction gets a little easier if you have a frame of reference to build off of and the right software to learn from. Use Divvy in conjunction with your bookkeeping software to optimize your books.
