Choose the appropriate bank transaction type and category for sole traders
This article explains how to choose the appropriate type and category when explaining a bank transaction in FreeAgent if you’re a sole trader.
If you’re not a sole trader, read how to choose the appropriate type and category when explaining a bank transaction for limited companies and landlords.
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 money paid in to or paid out of your business bank account.
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 money out personal transactions as 'Money Paid to User' and 'Drawings', and money in personal transactions as 'Money Received from User' and 'Capital Introduced'. However, you won't see these options if the bank account has been marked as a personal account or if the user you're allocating the payments to has a 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 none of the available categories is suitable for a transaction, you can create a custom accounting category.
- 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.
- If you’re unsure which ‘Type’ and ‘Category’ to allocate a bank transaction to, please ask your accountant. If you’re not currently working with an accountant, you may wish to find one through FreeAgent CoPilot.
Money in transaction types and categories
Below is a list of all the standard ‘Money in’ transaction types and their associated accounting categories (if applicable) in FreeAgent.
- ‘Invoice Receipt’: for money received for an invoice you’ve created in FreeAgent - choose the relevant invoice from the ‘Invoice’ menu
- ‘Sales’: for money received that you didn’t create an invoice for in FreeAgent - if you’ve set up a custom income category, choose it from the ‘Category’ menu
- ‘Transfer from Another Account’: for money transferred from another bank account in FreeAgent - choose the relevant bank account from the ‘Bank Account’ menu
- ‘Refund’: for money received as a refund for a cost of the business - choose the relevant cost category (or tax) from the ‘Category’ menu
- ‘Bill Refund’: for money received as a refund from a supplier for a bill credit note that you’ve created in FreeAgent - choose the relevant bill credit note from the ‘Bill Refund’ menu
- ‘Money Received from User’: for money paid into the business by a user that you’ve added in FreeAgent - choose ‘Capital Introduced’ from the ‘Category’ menu
- ‘Disposal of Capital Asset’: for money received for a capital asset that was sold or scrapped - choose the relevant asset from the ‘Disposed Asset’ menu
- ‘Sale of Stock’: for money received for a stock item that wasn’t included on an invoice that you created in FreeAgent - choose the relevant item from the ‘Stock item’ menu
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 and choose one of the following categories:
- ‘Receipt from Initial Debtor’ for when a customer pays you the money they owed at your FreeAgent start date
- ‘Receipt from Other Debtor’ for when a customer pays you the money they owed at your FreeAgent start date and you have used category '682 - Other Debtors' to record the opening balances
- ‘Receipt into Contra Account’ for explaining extra money received from an overpayment from a customer or to an employee
- ‘Grant Income’ for explaining a grant received from the government
- ‘Interest Received’ for explaining money earned on savings from the bank
- ‘Realized Currency Exchange Gain’ if you’ve created a foreign currency invoice and the exchange rate has changed between the date the invoice was issued and the date it was paid
If none of the available categories is suitable for a transaction, you can create a custom accounting category.
Read more about how to explain money received into your bank account or watch the video below.
Money out transaction types and categories
Below is a list of all the standard ‘Money out’ transaction types and their associated accounting categories (if applicable) in FreeAgent.
- ‘Sales Refund’: for money that you’re refunding to a customer for cash previously received and explained as ‘Sales’ - if you’ve set up a custom income category, choose it from the ‘Category’ menu
- ‘Payment’: for money spent day-to-day running costs - choose the relevant cost category (or tax) from the ‘Category’ menu
- ‘Bill Payment’: for money paid to a supplier for a bill that you’ve created in FreeAgent - choose the relevant bill from the ‘Bill’ menu
- ‘Transfer to Another Account’: for money transferred to another bank account in FreeAgent - choose the relevant bank account from the ‘Bank Account’ menu
- ‘Money Paid to User’: for money paid to a user that you’ve added to FreeAgent - choose ‘Drawings’ from the ‘Category’ menu for money taken out of the business, ‘Net Salary and Bonuses’ for a salary payment or ‘Expense Payment’ for money reimbursed to a user
- ‘Purchase of Capital Asset’: for money paid to purchase a capital asset - choose the relevant asset type and deprecation method
- ‘Purchase of Stock’: for money paid to purchase stock - choose the relevant stock item and quantity
- ‘Credit Note Refund’: for money refunded to a customer that you’ve created a credit note for in FreeAgent - choose the relevant credit note from the ‘Credit note’ menu
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 and choose one of the following categories.
- ‘Other Payroll Deductions’ for items subject to Class 1 NIC but not taxed under PAYE regulations such as non-cash vouchers and payments of an employee's personal liabilities (excluding pension contributions)
- ‘Payment from Contra Account’ for explaining the money paid back to a customer or an employee if there was an overpayment
- ‘Payment to Initial Creditor’ for when you pay a supplier money you owed them at your FreeAgent start date
- ‘Payment to Other Creditor’ for when you pay a supplier money you owed them at your FreeAgent start date and you have used category '797 - Other Creditors' to record the opening balances
- ‘Pension Creditor’ for when you pay money to a pension scheme
- ‘Realized Currency Exchange Loss’ if you’ve created a foreign currency invoice and the exchange rate has changed between the date the invoice was issued and the date it was paid
If none of the available categories is suitable for a transaction, you can create a custom accounting category.
Read more about how to explain money paid out of your bank account or watch the video below.