Choose the appropriate type and category when explaining a bank transaction
This article explains how to choose the appropriate type and category when explaining a bank transaction relating to money paid in to or paid out of your business bank account in FreeAgent.
Once a bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you'll need to explain what type of income or cost it is. To do this, you'll need to select the appropriate ‘Type’ and ‘Category’ when explaining the bank transaction.
If you’re unsure which ‘Type’ and ‘Category’ to allocate a bank transaction to, please ask your accountant.
Please note:
- You need to have level 6 access or above to your FreeAgent account to explain a bank transaction.
- If you're using a business bank account, you can explain personal transactions as 'Money Paid to User' and 'Drawings' for money out transactions, or 'Money Received from User' and 'Capital Introduced' for money in transactions. However, you won't see these options if the bank account has been marked as a personal account or if you have a user role of 'Accountant'.
- If you’re using a personal bank account for your business and this option has been selected in FreeAgent, you only have to explain the transactions that relate to your business.
- If you're below the VAT threshold and not VAT-registered, you can leave the VAT rate as 'Auto' when explaining bank transactions or change it to 'Out of Scope'. If you leave the VAT rate as 'Auto' and then register for VAT in the future, FreeAgent will automatically reclaim the VAT on these purchases on your first VAT return if required.
Money paid in to your bank account
Transaction types and categories
First, you’ll need to choose the relevant ‘Type’ from the options below when explaining the bank transaction. Then, you’ll need to select the relevant ‘Category’ from the drop-down list provided (if applicable).
If none of the available categories is suitable for a transaction, you can create a custom accounting category.
Below is a list of all the standard ‘Money in’ transaction types in FreeAgent. Select a link for more details on the transaction type and related accounting categories:
- ‘Invoice Receipt’
- ‘Sales’
- ‘Transfer from Another Account’
- ‘Refund’
- ‘Bill Refund’
- ‘Money Received from User’
- ‘Disposal of Capital Asset’
- ‘Sale of Stock’
If the money paid in to your bank account doesn’t fit into any of the above options, select the ‘Other Money In’ transaction type. See more details and example scenarios.
Specific scenarios
You may encounter one of the following scenarios where you need to explain money coming into your bank account. Select the relevant link below for more details:
- An overpayment from a customer
- Capital introduced into a business
- A grant received under the Coronavirus Job Retention Scheme or Self-Employment Income Support Scheme
- Rent deposit received from a tenant
- A PAYE refund from HMRC
- A Corporation Tax refund from HMRC
- A Self Assessment refund from HMRC
- A VAT refund from HMRC
- Grant income
- A bounced cheque received
Find out more about how to explain money received into your bank account.
In this video, Gillian from the FreeAgent support team guides you through choosing the appropriate type and category when explaining money paid into your bank account in FreeAgent.
Money paid out of your business bank account
Transaction types and categories
First, you’ll need to choose the relevant ‘Type’ from the options below when explaining the bank transaction. Then, you’ll need to select the relevant ‘Category’ from the drop-down list provided (if applicable). You can choose from expense categories that are normally VATable or normally zero-VAT, cost of sales or taxes.
For more guidance on how to categorise a business cost, please see the list of available categories for day-to-day running costs in FreeAgent.
If none of the available categories is suitable for a transaction, you can create a custom accounting category.
Please note that if the cost that you’re categorising was paid for using personal funds, you should create an out-of-pocket expense instead of explaining a bank transaction.
Below is a list of all the standard ‘Money out’ transaction types in FreeAgent. Select a link for more details on the transaction type and related accounting categories:
- ‘Sales Refund’
- ‘Payment’
- ‘Bill Payment’
- ‘Transfer to Another Account’
- ‘Money Paid to User’
- ‘Purchase of Capital Asset’
- ‘Purchase of Stock’
- ‘Credit Note Refund’
If the money paid out of your bank account doesn’t fit into any of the above options, select the ‘Other Money Out’ transaction type. See more details and example scenarios.
Specific scenarios
You may encounter one of the following scenarios where you need to explain money going out of your bank account. Select the relevant link below for more details:
- A salary payment to an employee
- Money taken out of a business by a sole trader or partner
- A Self Assessment payment to HMRC
- A VAT payment to HMRC
- The transfer of funds between bank accounts in FreeAgent
- A rent deposit paid to a landlord
- A PAYE payment to HMRC
- A Corporation Tax payment to HMRC
- An overpayment to an employee
- An overpayment to a director
- A dividend payment
- A smart user payment
- A benefit in kind payment to a limited company director
Find out more about how to explain money paid out of your bank account.
In this video, Gillian from the FreeAgent support team guides you through choosing the appropriate type and category when explaining money paid out of your bank account in FreeAgent.