How to Quickly Categorize Uncategorized Transactions

Accountants and bookkeepers frequently stumble upon debits and credits that are not easily discernible and, as a result, encounter a hurdle when attempting to populate and reconcile an account.  A common industry practice in order to move forward is to simply record an unrecognized transaction to one or more suspense accounts and then reach out to the business owner or cardholder later to seek additional details in order to determine which category fits best.  

 

When accountants and bookkeepers don’t have enough information to adequately categorize a transaction (i.e. a debit from a new vendor is presented into the accounting system bank feeds and the bank rules can’t properly default it to the correct category), users will resort to assigning the debit or credit to a suspense account, such as “uncategorized income” or “uncategorized expenses”.  Unfortunately, this method of categorizing transactions is ineffective – mainly due to the fact that the integrity of the financial statements will be compromised until all unrecognized transactions are addressed and ultimately reclassified.

 

Addressing uncategorized transactions with your client does not usually occur immediately.  Accountants and bookkeepers may not be able to request details from their client right away and the client may not be able to respond to these requests in a timely fashion as well.  Alternatively, there may be a mutual understanding that all questions and concerns are to be addressed at the next accounting meeting or financial update.

Storing transactions in uncategorized suspense accounts is never a plausible method of proper bookkeeping.  There are many events where resorting to this practice could pose as a serious issue.

 

  • An unrecognizable debit is actually a partial payment towards an open vendor bill.  If the debit is recorded to uncategorized expenses, the business runs the risk of accidentally paying the entire vendor bill instead of the remaining balance – resulting in an overpayment to the vendor.
  • An unrecognizable credit is actually a partial payment towards an open customer invoice.  If the credit is recorded to uncategorized income, the business runs the risk of accidentally reminding the customer that their invoice is past due and the invoice will not reflect the proper balance due.
  • An unrecognizable debit is actually a fraudulent charge.  If this is not detected in a timely fashion, the business runs the risk of allowing additional fraudulent charges to hit the account.
  • An unrecognizable credit is actually a chargeback for an expense or check that was previously paid without sufficient funds in the account at the time.  If the business owner is not aware of this in a timely fashion, they may not be able to notify the vendor in a timely fashion and can potentially damage their relationship with that vendor and compromise their reputation.

 

With Pinger, this headache of identifying unrecognized transactions is mitigated through a ping notification that alerts the accountant, bookkeeper and/or client if a transaction is recorded to any specific account.  Within your Pinger portal, simply assign “Uncategorized expenses” and “Uncategorized Income” as your two accounts that you want to monitor.  Pinger will then send a notification into your designated communications platform (Slack, Workplace by Facebook, Email, SMS) within 5 minutes if any transaction is recorded to either of your assigned accounts.

 

Activating this particular ping will allow companies to respond and react quicker to potentially damaging scenarios.  If the client receives the notification in Slack, for example, they can immediately tag their accountant to provide them with additional transaction details.  This method can serve as a more efficient process than simply allowing all of the unrecognized transactions to pile up and having to dig through them at the end of each accounting period (when it may possibly be too late to salvage a particular situation).  In addition, from an audit perspective, these pings are useful because the information that the client sends to you can be referenced and even copied into the memo section within the accounting system.  Most importantly, your pings allow you to maintain accurate financials at all times, even prior to closing the books!