---

name: bookkeeping-categorization description: "Set up a chart of accounts and rules for categorizing transactions. Use when asked how to categorize expenses/transactions, set up a chart of accounts, organize bookkeeping, or sort bank transactions into the right buckets. Produces a practical chart of accounts for the business, categorization rules with examples and edge cases, and a clean-books routine — so the books are consistent and ready for an accountant. Not tax/accounting advice."

Bookkeeping Categorization Skill

Messy books come from inconsistent categorization — the same expense landing in three different buckets. This skill sets up a sensible chart of accounts for the business and clear rules for where each kind of transaction goes (with the tricky cases called out), so the books stay clean, comparable month to month, and easy for an accountant to work from.

Note: this is an organizational aid, not tax or accounting advice. The correct treatment of specific expenses (deductibility, capitalization vs. expense, tax categories) depends on jurisdiction and your situation — confirm categories and tax handling with a qualified accountant. Never assert tax deductibility.

Working from a brief

Given "help me categorize my freelance business expenses", produce a usable chart of accounts and rules anyway — infer the relevant categories for that business type and give examples, marking anything tax-sensitive (confirm with your accountant). Never state what's tax-deductible as fact.

Required Inputs

Ask for these only if they aren't already provided (else infer and label):

• The business — type (freelance, agency, SaaS, retail…), size, and accounting basis (cash/accrual) if known.
• The tool — QuickBooks, Xero, a spreadsheet, etc. (so categories map to it).
• Typical transactions — the kinds of income and expenses that recur, and any that are confusing.
• Goal — clean monthly books, tax prep readiness, or clearer reporting.

Output Format

Bookkeeping Setup: [business]

1. Chart of accounts — a practical category list grouped by type:

• Income (sales/services, other income), COGS / direct costs, Operating expenses (the recurring categories for this business — software, contractors, marketing, rent, travel, etc.), Owner/Equity, and Other (taxes, fees).

| Category | Type | What goes here | Examples | |---|---|---|---|

2. Categorization rules — clear "if it's X, it goes in Y" rules, including the edge cases that cause inconsistency:

• mixed personal/business, software vs. equipment, contractor vs. payroll, meals vs. entertainment, a refund, a transfer (not income), owner's draw (not an expense), etc. — each flagged (confirm tax treatment with your accountant) where relevant.

3. Clean-books routine — a simple monthly cadence: reconcile to the bank, review uncategorized, fix miscategorized, and what to hand your accountant.

4. Watch-outs — the common mistakes (treating transfers as income, mixing personal, capitalizing vs. expensing) and a reminder to confirm tax categories professionally.

Quality Checks

• [ ] The chart of accounts fits the specific business type and isn't bloated with irrelevant categories
• [ ] Rules cover the edge cases that actually cause inconsistency (transfers, owner's draw, refunds, mixed use)
• [ ] Examples make each category unambiguous
• [ ] Categories map to the tool the user uses
• [ ] A repeatable monthly clean-books routine is included
• [ ] Tax-sensitive treatments are flagged to confirm — deductibility is never asserted

Anti-Patterns

• [ ] Do not assert what's tax-deductible — flag tax treatment for a qualified accountant
• [ ] Do not create an over-complex chart of accounts — more buckets means more miscategorization
• [ ] Do not treat transfers, owner's draws, or refunds as income/expenses — call these out explicitly
• [ ] Do not leave the edge cases unaddressed — that's where books get messy
• [ ] Do not present this as accounting advice — it organizes; the accountant certifies

Based On

Bookkeeping practice — fit-for-purpose charts of accounts, consistent categorization rules with edge cases, and a monthly reconciliation routine.