BENCH SMALL BUSINESS GUIDES Step 4. Categorize your transactions Every transaction you make needs to be categorized when it’s entered in your books. This helps your bookkeeper catch more deductions, and will make your life easier if you get audited. Six months later, an unmarked receipt for lunch at a restaurant might not mean much to you. Was it a client lunch? Did you treat your employees after a successful quarter? The way you categorize transactions will depend on your business and industry. Generally speaking, your transactions fall into five account types—assets, liabilities, equity, revenue, and expenses. Individual line items are then broken down into subcategories called accounts. In our ice cream shop example, some accounts in your ledger might be “revenue-ice cream sales”, “expenses-ice cream ingredients”, etc. The actual work of categorizing will depend on your bookkeeping solution. If you’re doing it all yourself, you could make a note on each receipt. If you’re using an online bookkeeping service like Bench, you’ll just have a conversation with your bookkeeper about how you’d like your most common transactions to be categorized, and they’ll take it from there. If you’re going to be doing your own bookkeeping, it’s worth talking to a pro when you set up your system, to make sure the accounts you create align with your industry standards and CPA expectations. 10