- Receipts: Incoming cash from taxes, grants, customer payments, or other revenue sources.
- Disbursements: Outgoing payments for payroll, vendor invoices, debt service, and operational costs.
- Transfers: Movements of cash between accounts, such as from operating accounts to investment accounts.
- Adjustments: Bank fees, interest earnings, or other non-operational transactions.
How Does Transaction Categorization Work?
Organizations categorize transactions by grouping them into predefined categories such as:- Revenue: Includes income from taxes, grants, contributions, service fees, and investment earnings.
- Expenses: Covers operational costs such as payroll, utilities, office supplies, vendor payments, and administrative costs.
- Debt-Related Transactions: Includes bond proceeds, debt service payments, loan repayments, and interest expenses.
- Capital Expenditures: Covers spending on infrastructure, equipment, and other long-term assets.
- Interfund Transfers: Represents internal fund transfers within an organization, such as moving money between restricted and unrestricted funds.
- Reserves and Investments: Includes funds allocated for emergency reserves, endowments, or short-term and long-term investments.
Each organization may refine or expand these categories based on their specific needs and financial reporting requirements.
What’s important here?
Transaction categorization helps organizations organize and analyze their cash flow by classifying transactions based on their type and purpose. This process improves financial visibility, enhances forecasting accuracy, and supports better decision-making. Automating transaction categorization further reduces manual workload and ensures real-time insights into an organization’s liquidity.
