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How to explain a bank transaction

This article describes how to explain a bank transaction that has been imported into FreeAgent via a bank feed or uploaded from a bank statement.

Please note that you need to have level 6 access or above to your FreeAgent account to explain bank transactions.

For information on how to explain multiple bank transactions in bulk, please see this article.


Identifying unexplained transactions

Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.

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Choose the relevant bank account from the list.

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Unexplained bank transactions will be displayed in red in your business bank accounts in FreeAgent and can also be found in their own dedicated 'Unexplained' tab.

Any bank account that you haven't indicated is a personal account in FreeAgent is classed as a business bank account. Unexplained transactions in personal bank accounts are displayed in grey. You can explain them, but leaving them unexplained won’t impact your business accounts.

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Sorting bank transactions alphabetically

You can sort bank transactions alphabetically in the ‘Unexplained’ and ‘For Approval’ tabs. It’s not possible to sort transactions alphabetically in the ‘All Transactions’ or ‘Manually Added’ tabs.

To do this, select the ‘Description’ header within the ‘Unexplained’ or ‘For Approval’ tab.

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This will display the bank transactions in alphabetical order by description.

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The alphabetical sorting will only apply to the most recent 1,000 bank transactions in the chosen tab. Sorting bank transactions in the ‘Unexplained’ tab will not sort the transactions in the ‘For Approval’ tab unless you also select the ‘Description’ header within that tab.

Please note that sorting bank transactions by selecting the ‘Date’ header in any of the tabs will override the alphabetical sorting in the ‘Unexplained’ and ‘For Approval’ tabs.

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’ll 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.

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You can either select a month from the 'Unexplained' transactions tab 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.

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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.

Alternatively, you can 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, you will still see the VAT options but FreeAgent will automatically ignore the VAT setting (unless you register for VAT in the future), so you don’t need to make any changes.

Entering a description and adding an attachment

Enter a description of the transaction. It can be helpful to have this detail on record in case your accountant needs additional details 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 ‘Upload a file’ from the 'Attachment' area and following the instructions.

If you used the FreeAgent mobile app to capture an image file and save it to the 'Files' area of your account, select 'Choose from saved files' instead and follow the instructions. Please note that attaching an image file to a transaction will remove it from the ‘Files’ area of your FreeAgent account.

If you have attached a file to an email template, the file will be locked in the ‘Files area’ and you won’t be able to attach it to a transaction. If you want to attach a locked file, follow these steps.

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Select 'Explain Transaction' to complete the process. For information on how to link a bank transaction to a project, please see this article.

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A record of the bank transaction being explained will appear in your Audit Trail report.

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Explaining similar bank transactions

When you’re explaining a transaction, FreeAgent may prompt you to explain additional unexplained transactions with similar descriptions to the same category.

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You will see a notification that there are matching transactions to choose from. Select the ‘Select all matching transactions’ link to view the details of the matching transactions.

FreeAgent will automatically use the search function to filter the transactions based on a similar description and tick all the boxes next to the corresponding ‘Money In’ or ‘Money Out’ transactions, depending on the type of the original explained transaction.

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Use the panel on the right-hand side to choose the relevant ‘Type’, VAT rate and ‘Category’ for the selected transactions.

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Select ‘Explain [X] transactions’ to explain all the selected transactions in the same way.

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Please note that it’s not possible to explain similar unexplained transactions as the following transaction types:

  • 'Invoice Receipt'
  • 'Bill Payment'
  • 'Bill Refund'
  • 'Credit Note Refund'

For more information on how to explain multiple transactions in bulk, please see this article.

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