Transaction Categorization

Learn how to effectively categorize financial transactions in Open Ledger.

Transaction categorization is a fundamental accounting process that ensures every financial transaction is properly classified for accurate bookkeeping and reporting. By categorizing transactions, businesses can maintain organized financial records, generate accurate reports, and make informed business decisions.

How Categorization Works at Open Ledger

Open Ledger provides two primary methods for categorizing transactions:

Automated Categorization
  • Our LLM-powered system automatically categorizes transactions based on details
  • Machine learning improves categorization accuracy over time
  • Automation reduces manual workload while maintaining accuracy

Manual Categorization
  • Review and adjust categories through our intuitive interface
  • Bulk categorization options for similar transactions
  • Custom rules creation for recurring transactions

Category Structures

All transactions are organized using industry-standard General Ledger (GL) codes:

CategoryDescription
ASSETResources owned by the business
LIABILITYDebts and obligations
EQUITYOwner’s stake in the business
CategoryDescription
REVENUEIncome from primary business activities
EXPENSEGeneral business expenses
INTEREST_INCOMEIncome from investments
COGS_EXPENSECost of goods sold
SGA_EXPENSESelling, general, and administrative expenses
SM_EXPENSESales and marketing costs
RD_EXPENSEResearch and development
INTEREST_EXPENSECost of borrowing
TAX_EXPENSEBusiness tax obligations

Customization Options

  • Create custom subcategories within standard GL categories
  • Set up category rules based on transaction patterns
  • Import existing category structures from other accounting systems
  • Define category hierarchies that match your business structure

Best Practices

  1. Review automated categorizations regularly
  2. Maintain consistent categorization rules
  3. Document any custom categories
  4. Periodically audit categorization accuracy
  5. Update category rules as business needs change