Five Tips for Allocating Transactions Correctly — Every Time

Set up rules: Setting up rules will help you to allocate transactions automatically (so long as your software has this feature, of course). For example, set up a rule so that payments to Telstra automatically get allocated to ‘Telephone Expense’.

Record default expense accounts for suppliers: If your accounting software doesn’t let you set up rules, record default expense accounts for each supplier instead (if you can, that is!).

Work out where to allocate tricky transactions: If you’re not sure what account to allocate a transaction to, allocate the transaction to an expense account called ‘Suspense’ (create an account by this name if you don’t have one already). At the end of each month or quarter, ask your accountant for advice on how to allocate these transactions. This method is much better than random guesswork, and every time you follow this process you’re more likely to know what to do next time.

Separate personal transactions from business transactions with a new bank account: If you’re doing the books for someone who has a jumble of personal and business transactions, suggest to the owner that they open a new bank account so that they can separate personal transactions from business transactions. You’ll find allocating transactions correctly much easier if you’re not wasting time differentiating legitimate business expenses from takeaways, gifts to random lovers, groceries and dog food.

Use numbers, not just names: If your software allows you to do so, include numbers for each account, not just names, and use account numbers to differentiate between assets, liabilities, income and expenses. This way you’re much less likely to inadvertently allocate a transaction to the wrong kind of account.