How to Auto-Categorize Expenses

TOPICS COVERED IN THIS ARTICLE

1. Create an expense
   
2. Matching an expense to claim a business deducation
   
3. Set up Auto-Categorization

For many business owners, it’s easy to know where the money is coming in from but harder to track how it’s spent. Expenses can come in all shapes and sizes, from recurring subscriptions to one-time purchases to payroll to taxes. Often, neglecting to take stock of your expenses can lead to overspending. This is why smart categorization of your expenses can improve the health of your business. Seeing at-a-glance which category is leading to your highest expense can help you diagnose inefficiencies, thereby cutting unnecessary expenses and improving your overall profitability.

Another benefit of categorizing your expenses is to create and maintain accurate Profit & Loss Statements, Balance Sheets, and many other financial reports. By keeping all expenses categorized accurately throughout the fiscal year, these reports will be kept up to date and useful at a moment’s notice to send to lenders or as a financial health checkup.

Creating an Expense – Manual vs Bank Sync

Creating expenses: There are two main paths to inputting your expenses; manually adding an expense, or setting up a bank sync.

      Manual: First, is the manual method, which is exactly as it sounds, you input each expense individually. While manual can work for a few expenses, it can get tedious to do each month, especially if there are more than a few expenses.

      Learn how fully to manually input expenses in bulk here.  

Manually entering an expense:

Step 1: On the left-hand column, click on the Expense tab. This will bring you to the Expenses screen. From there on the top right, you'll see a green-lit button called "Create Expense". That's where you click.

From there, you enter the expense information, and you're on your way.

Bank Sync to upload expenses:

Step 1- The second is far more robust and makes things easy, and that’s syncing your bank accounts. You can find out how to do that right here.

How To Leverages Auto-Categorization:

Sunrise makes categorizing your business expenses easy in two ways:

1. By providing a simple interface to categorize each expense; and

2. By applying a learning algorithm that will automatically categorize expenses for you.

As you categorize expenses, machine learnings will learn from your selections and eventually take care of it for you. Let’s see how this works.

Start Categorizing Expenses

For Sunrise to pull in your business expenses, you must link a bank account and/or credit card account that itemizes these expenses

Guide to how to link your bank account.

Next, use the left navigation menu to access your bank account feed. Click on Unmatched. This will bring up all of your unmatched income and expenses.

View of Sample Unmatched Transactions

Unmatched expenses can be matched by clicking Match under the Account column and choosing Record Expense.

Record Expense Example

This will pop down a menu where you can select the Vendor, Expense Account, and add a Description that corresponds to this specific expense. You can also click Add Receipt to attach an image of the receipt.

The Expense Account categories that Sunrise has built in are the most common expenses such as Cost of Sales, Supplies, Salaries & Wages, and many more. If the dropdown menu of expense categories doesn't include a particular one you’re looking for, you can use the Add new account option at the bottom of the dropdown.

Once you have categorized a particular expense, it will disappear from the Unmatched view and show up in either the All or Matched view.

To unmatch a matched expense (in case you made an error, for example), click on More on the upper right-hand corner, select Archive, and cancel the matched expense you would like to unmatch.

How Automatic Expense Categorization Works

Out of the box, Sunrise can already automatically use keywords to put common expenses into many default categories (Schedule C). For example, Sunrise will read a keyword like “Parking” and auto-categorize this expense under “Automobile & Transit.”

Whenever an expense is auto-categorized, the left-hand color bar will appear as a yellow-red gradient as shown in the example above. If you agree with the category, click the green Match to XXXX button on that line item to approve it.

Besides the out-of-the-box auto-categories, Sunrise will apply its learning algorithm as you manually categorize your expenses. After you categorize a similar expense 2−3 times, Sunrise will learn and auto-categorize similar expenses moving forward.

If you disagree with any auto-categorization of a particular expense, you can either click Edit, which will bring up the pop-down menu so you can change the Vendor, Expense Account, or Description; or click Cancel to remove the matching altogether in order to start over.

Editing or canceling the auto-categorization also teaches the algorithm to improve the accuracy of matching similar expenses in the future.

Eventually, almost all of your frequent business expenses will be automatically categorized by Sunrise’s learning algorithm. This can save you hours of time each month, and also help you keep on top of matching your expenses throughout each day.

Note: Free users of Sunrise are limited to 5 auto-categories. Full expense automation is available in SunrisePlus.

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