(and Why It Matters)
When you’re doing your own bookkeeping, one of the most common (and frustrating) hurdles is figuring out how to categorise your expenses. It might seem like a small detail—but getting it right can save you time, help you understand your business better, and even make it easier to apply for funding or loans.
So, how do you categorise expenses correctly? Let’s break it down.
Step 1: Know Your Categories
Most bookkeeping software comes with standard categories such as:
- Office Supplies
- Advertising & Marketing
- Travel Expenses
- Meals & Entertainment
- Rent or Home Office
- Subscriptions
- Professional Fees
- Wages & Super
- Bank Fees
You can also add your own categories, but try to keep things simple. While having insufficient categories may not result in being able to get the information you need, too many can also lead to confusion.
Step 2: Be Consistent
If you record your Canva subscription under “Software” one month and “Marketing” the next, your reports won’t give you a clear picture. Choose the most logical category and use it every time for similar expenses.
Tip: If in doubt, search in your system for the last transaction, and treat the newest one the same. Some software will also allow you to duplicate transactions, which copies over the information from the old transaction to the new one. Just make sure to record the correct date!
Step 3: Match Receipts with Transactions
Always attach receipts to your expense entries. If you’re using software like Xero or MYOB, you can do this digitally. It’s a great habit to get into—especially when you’re trying to remember what that $27 charge from “XYZ Pty Ltd” was.
Step 4: Regularly Review Your Categories
Each quarter, take a few minutes to scan your categorized expenses. Are they accurate? Could anything be grouped better? Small adjustments now can prevent bigger problems later.
Bonus Tip: When in Doubt, Ask
Some expenses fall into grey areas. Is your Zoom subscription “Software” or “Utilities”? Is that networking lunch “Meals” or “Marketing”? Choose the category that best reflects the business purpose—or check in with a bookkeeper.
Better yet…
Join Boss of Your Books
If you’re tired of second-guessing your expense categories, my low-cost membership, Boss of Your Books, was designed for you.
Each month, we meet on Zoom for a live co-working session where you can get help, ask questions, and stay on top of your bookkeeping. It’s support without the pressure—and perfect for business owners who want to do it themselves, but not by themselves.
