Ronika Khanna explains when to use Categorize versus Record as transfer in QuickBooks Online banking. Categorize lets you add tax codes, tags, and customer details, while Record as transfer only moves money between accounts. Use Categorize when in doubt because it captures more useful information.
Hello everyone. In today's tutorial, I would like to discuss the distinction between categorize and transfer in QuickBooks Online. This is an option that is available to you through your banking download and you can choose one of them to determine how you are going to allocate your transaction. So we are going to look at that and I am going to let you know if one way is better than the other. My name is Veronica Canna. I am a cpa, a CFA, and the founder of Montreal Financial, where you can find lots of resources for businesses, freelancers, solopreneurs, etc. And I encourage you to sign up to my newsletter where you can help to improve your financial knowledge and literacy. Okay, so let us begin to exemplify the difference between categorize and record as transfer. We are going to take a look at a downloaded transaction. This is actually a payment from the bank account to an Amex credit card and you have the choice to categorize or record it as a transfer. So now let's talk about the distinction between the two. Record as a transfer means that the amount has to be allocated to another balance sheet account. So for example, if you were transferring money from your checking to your savings account account, these are both balance sheet accounts, it would make sense to record that as a transfer. Or you may be making a loan payment, you may be borrowing money from the company. These are all types of transfers and payment on a credit card is probably the most common type of transfer. Conversely, categorized means that you can put in some additional information and you can categorize the account with either balance sheet account or an account on your profit and loss statement. So categorize is a little broader in its scope. And the reason QuickBooks gives you this option is with a transfer you are only required to put in a limited amount of information because if you're just transferring from one account to another, you don't really have to take sales tax codes into consideration. And in fact it really just gives you the option to enter transaction date any account that you were transferring from this account to. And then if you click on the drop down, you will see you have some options here. And all of these options are basically balance sheet accounts and then you can put in a memo. So that's it. Conversely, if we look at categorized, you'll see that there's a lot more information that you can actually put in which includes the the type of transactions you put in an expense or if you made a check, you put a check which allows you to put the check number, the date the check number. Again, who you pay. And you'll see in record as a transfer, that is not an option because again, you are just transferring from one account to another. So if you're transferring from your bank account, your savings account, or to your credit card account, these are just internal transactions that don't require a payee. Similarly, now the category is exactly the same as the transferred to section over here. And so here again you were limited to your balance sheet accounts, but here you can select any account which can be an expense, but you can also actually select your balance sheet account. So, so everything that you can do in a transfer, you can do in a categorized transaction. You just have to input a little more information. You could have a product service. This you can toggle off in settings if you don't want to see it. Same for this. Or you can enter this here. This can be useful. Your product service or your customer project. And then location and class is available in higher versions of QuickBooks. You can add a tag. Now in record as transfer, you cannot add a tag. So that's another reason that you might want to use Categorize. And then memo is the same, you can use a memo in both. So my recommendation is to when in doubt, use Categorize. And if you don't want to bother with, with trying to understand or wrap your head around what's a transfer, what's an expense, then I would simply always use Categorize. And you would just enter the information that's required. You can leave the supplier blank, you can leave the check number blank. The category is essential. You'll see the little star next to it. So you do have to enter the category and you do have to enter a tax code. And a tax code is not required on a transfer. So when you are recording a payment from an intra account payment, like from your bank to your savings or your credit card, or for a loan payment, you would simply choose out of scope. And I have a whole video on the difference between zero rated and exempt and out of scope for transfers. Generally speaking, GST and HST are simply not relevant. They don't apply. So you would put out of scope, which is sort of another way of saying not applicable. So just to summarize, my recommendation is to use the categorize option rather than the record as transfer option for all transactions. Unless you're an accountant and you have your way. And that's totally fine. I personally use transfers sometimes because it's just a little easier. But it really maybe you save two or three seconds, it's really not a lot. And this way you can enter a supplier. This is good information to have. You can put in a tag. And the tax code is simply going to be out of scope for the type of transactions that I talked about. And so again, this just gives you a little more information. So I hope this was helpful. I hope this helped to sort of clear up the confusion about categorize versus transfer. If you still have questions, do not hesitate to leave a comment and please like and subscribe. Have a great day.
