How to explain bank transactions

Once you've uploaded bank transactions into FreeAgent or enabled bank feeds, you'll then need to explain each transaction. Here's how to do it.

Identifying unexplained transactions

Unexplained bank transactions will be displayed in red in your business bank accounts in FreeAgent accounts. Any bank account that you unticked the ‘this is a personal account’ checkbox for when you added the account to FreeAgent is classed as a business bank account in the system. Unexplained transactions in personal bank accounts are displayed in grey - you can explain them if you wish but leaving them unexplained won’t have any impact on your business accounts.

How to explain a bank transaction

When you access any of your business bank accounts in FreeAgent, you’ll see all the transactions for the current month, including unexplained transactions. You will also see a list of unexplained bank transactions from previous months (if applicable), along with the total number of unexplained transactions in that bank account. It's a good idea to explain transactions in chronological order if you can.

Depending on how many unexplained transactions you have, either select a month from the list of unexplained transactions and choose an entry to explain, or select one of the unexplained transactions from the main view of bank transactions for the current month.

Once you’ve selected a transaction to explain, FreeAgent will ask you to provide some information about it.

Choosing a payment type and category

Select the appropriate payment and category type for the transaction from the list of options in the ‘type’ and ‘category’ drop-down menus.

Selecting the appropriate rate of VAT (for VAT-registered businesses)

The list of categories in the drop-down menu indicates which categories are normally VAT-able. If you choose one of these categories and your business is registered for VAT, FreeAgent will automatically calculate the VAT on the transaction for you if you choose ‘Auto’ from the VAT drop-down menu.

You can also choose a specific rate of VAT from the drop-down menu or enter a specific amount manually. To do this, choose ‘Amount’, and type the amount of VAT into the new box that appears.

If your business is not VAT-registered, FreeAgent will automatically ignore the VAT setting (unless you register for VAT in the future), so you don’t need to make any changes here.

Entering a description and adding an attachment

Enter a description of the transaction. It can be helpful to have this on record in case your accountant needs more notes or your books are inspected by HMRC. If you have any paperwork that relates to the transaction (e.g. a receipt), you can attach a scanned copy to the explanation by selecting ‘Add attachment’ and following the instructions.

Explaining multiple bank transactions

If you have more than one transaction that you need to explain in the same way, tick the checkboxes next to the relevant transactions and enter the explanation information. This will explain all the selected transactions in the same way. Remember to include an appropriate description for the selected transactions. If you leave the ‘description’ field blank then the transactions will be given the original descriptions that came through for them in the bank feed.

This feature works with all bank account types, including PayPal accounts, and is currently available for the following types of transactions:

• Money in > Sales
• Money in > Refunds
• Money out > Payments
• Money out > Sales Refunds

To quickly select all the transactions on a page, tick the checkbox at the top of the page, hold down the 'Shift' key and then tick the bottom checkbox.

Explaining similar bank transactions

Depending on how you explain the bank transaction, FreeAgent may invite you to identify any similar unexplained transactions in the same way in the future.

When you come to explain a similar transaction, you will see a notification that there are matching entries to choose from. Select ‘More options’ to view the details of the matching transaction.

To accept the suggested explanation for the new unexplained transaction, choose it and select ‘Use selected entry’.

FreeAgent won’t prompt you to explain similar unexplained transactions for the following transaction types:

• invoice receipt
• bill payment
• bill refund
• credit note refund

Linking outgoing bank transactions to projects

The 'More options' page includes the option to link outgoing bank transactions to projects and to re-bill those transactions to clients if appropriate. To go straight to the 'More options' page, you can press the 'Alt' key at the same time as selecting a bank transaction.