Transaction categorisation is the process of assigning each financial transaction to the correct account in your chart of accounts. It is the core activity of bookkeeping.
Transaction categorisation (also called coding or classification) is the foundation of all bookkeeping. Every transaction that flows through your business - every sale, purchase, payment, refund, transfer and fee - must be assigned to the correct account in your chart of accounts. The quality of your financial reports depends entirely on the accuracy of categorisation. A transaction categorised to the wrong account produces incorrect financial statements, wrong tax calculations and misleading business insights. Manual categorisation is time-consuming, error-prone and the primary reason small business bookkeeping falls behind. An average small business processes 200-500 transactions per month, each requiring human judgment about which account it belongs to. SortBooks speeds this up by using AI to suggest the right account for miscoded transactions, which you approve. The AI learns your specific business patterns, chart of accounts and categorisation preferences, getting more accurate over time. This transforms bookkeeping from a manual chore into an automated process that requires only periodic review.
SortBooks helps with the bookkeeping behind transaction categorisation by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing transaction categorisation by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
The chart of accounts is a structured list of all accounts used in your accounting system to categorise transactions. It defines the categories for your income, expenses, assets, liabilities and equity.
Bookkeeping is the systematic recording, organising and tracking of all financial transactions in a business. It forms the foundation for accounting, tax compliance and financial decision-making.
A bank feed is an automatic, real-time connection between your bank account and your accounting software that imports transactions directly, eliminating manual data entry.
Bookkeeping automation uses technology to perform repetitive bookkeeping tasks without manual intervention, including transaction categorisation, reconciliation and report generation.
Xero is a cloud-based accounting platform designed for small businesses. It provides invoicing, bank reconciliation, payroll, reporting and integrations with over 1,000 third-party apps.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.