How to add a new accounting category

This article explains how to add new accounting categories to your list in FreeAgent.

When you create an invoice item, out-of-pocket expense, bill, journal entry, or explain a bank transaction, you need to allocate these to a category to explain the type of income or cost that they are. For example, pens and pencils for use in the office would usually be allocated to the ‘Stationery’ category.

Before you add a new category, double-check that you aren’t duplicating an existing category that would suit your needs. For information on how to view the existing accounting categories in your account and edit them, please see this article.

You can add a new income category if you have level 7 access or above to your FreeAgent account. You’ll need to have full (level 8) access to add a new cost of sales, admin expense, capital asset, liability or equity category .

When you add a new category, you need to give it a name and a nominal code. A nominal code is the unique number that you use for each different category. Nominal codes are especially important if you ever want to export your data to other accounting software.

Once you’ve added a new accounting category, it will appear in your accounting reports, like your profit and loss report. Please note that at the moment, the only way to allocate transactions to a new current asset, liability or equity category is by creating journal entries.

Adding a new category

Select 'Settings' from the drop-down menu at the top right-hand corner of the screen and then select 'Accounting Categories'.

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Select the ‘Add New’ button and choose which type of new category you want to add.

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Below is a list of examples of when you might use each category type:

  • ‘Income’: if you want to split your sales into different income streams.
  • ‘Admin Expenses’: for all of your day-to-day business costs.
  • ‘Cost of Sales’: for costs that relate directly to the sales you make. For example, if you're a jeweller, these might be purchases of metal and precious stones.
  • ‘Capital Assets’: for costs of equipment, machinery, computers, cars, or anything else that has a high cost and is going to be used in your business for more than a year.
  • ‘Current Assets’: for items you own that add measurable value to your business in the future.
  • ‘Liabilities’: for obligations you have that will cost you in the future.
  • ‘Equity’: for values owed to the business owners.

Income category

Enter a name for the category in the ‘Description’ field and choose a new nominal code number for it.

FreeAgent will only let you pick certain codes - for example, ‘Income’ codes can only range from’ 001’ to ‘049’ - and some of the codes will already be taken by FreeAgent's existing categories.

Please note that ‘001 Sales’ is a pre-set FreeAgent category that you can’t edit or delete.

Once you’ve chosen a nominal code, select ‘Create Category’ to save this new category. If you want to save this category and create another new one, select ‘Create and Add Another’, or select ‘Cancel’ to exit without saving this category.

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Admin Expenses category

Enter a name for the category in the ‘Description’ field - for example subsistence, clothing or petrol - and choose a new nominal code number for it.

FreeAgent will only let you pick certain codes - for example, ‘Admin Expenses’ can only range from ‘200’ to ‘399’ - and some of the codes will already be taken by FreeAgent's existing categories.

Choose the tax reporting name for this category from the ‘Reporting Name’ drop-down menu and select the checkbox if it's allowable for tax.

Choose what you want the default VAT rate to be for this category from the ‘Auto VAT Rate’ drop-down menu. This is the VAT rate which is usually used for costs in this category (you can use a different VAT rate to the default when you enter individual bills and costs).

Once you’ve chosen a nominal code, select ‘Create Category’ to save this new category. If you want to save this category and create another new one, select ‘Create and Add Another’, or select ‘Cancel’ to exit without saving this category.

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Cost of Sales category

Enter a name for the category in the ‘Description’ field and choose a new nominal code number for it.

FreeAgent will only let you pick certain codes - for example, ‘Cost of Sales’ can only range from ‘100’ to ‘199’ - and some of the codes will already be taken by FreeAgent's existing categories.

Choose the tax reporting name for this category from the ‘Reporting Name’ drop-down menu and select the checkbox if it's allowable for tax.

Choose what you want the default VAT rate to be for this category from the ‘Auto VAT Rate’ drop-down menu. This is the VAT rate which is usually used for costs in this category (you can use a different VAT rate to the default when you enter individual bills and costs).

Once you’ve chosen a nominal code, select ‘Create Category’ to save this new category. If you want to save this category and create another new one, select ‘Create and Add Another’, or select ‘Cancel’ to exit without saving this category.

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Capital Asset type

Enter a name for the category in the ‘Description’ field and select ‘Create Capital Asset Type’.

When you explain a purchase or disposal of a capital asset in the future, you’ll see your new asset type in the drop-down menus.

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Current Asset category

Please note that at the moment, the only way to allocate transactions to a new ‘Current Asset’ category is by creating journal entries.

Enter a name for the category in the ‘Description’ field and choose a new nominal code number for it.

FreeAgent will only let you pick certain codes - for example, ‘Current Assets’ can only range from ‘671’ to ‘720’ - and some of the codes will already be taken by FreeAgent's existing categories.

Choose where the category should be reported on your Final Accounts report from the ‘Reporting Type’ drop-down menu.

Once you’ve chosen a nominal code, select ‘Create Category’ to save this new category. If you want to save this category and create another new one, select ‘Create and Add Another’, or select ‘Cancel’ to exit without saving this category.

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Liabilities category

Please note that at the moment, the only way to allocate transactions to a new 'Liability' category is by creating journal entries.

Enter a name for the category in the ‘Description’ field and choose a new nominal code number for it.

FreeAgent will only let you pick certain codes - for example, ‘Liability’ categories can only range from ‘731’ to ‘780’ - and some of the codes will already be taken by FreeAgent's existing categories.

Choose where the category should be reported on your Final Accounts report from the ‘Reporting Type’ drop-down menu.

Once you’ve chosen a nominal code, select ‘Create Category’ to save this new category. If you want to save this category and create another new one, select ‘Create and Add Another’, or select ‘Cancel’ to exit without saving this category.

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Equity category

Please note that at the moment, the only way to allocate transactions to a new ‘Equity’ category is by creating Journal Entries.

Enter a name for the category in the ‘Description’ field and choose a new nominal code number for it.

FreeAgent will only let you pick certain codes - for example, ‘Equity’ categories can only range from ‘921’ to ‘960’ - and some of the codes will already be taken by FreeAgent's existing categories.

Once you’ve chosen a nominal code, select ‘Create Category’ to save this new category. If you want to save this category and create another new one, select ‘Create and Add Another’, or select ‘Cancel’ to exit without saving this category.

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