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How to categorize bank transactions

Categorizing bank transactions is the step between a raw statement and a profit-and-loss statement you trust. This guide gives you a method that scales - set your categories, build matching rules, handle the tricky cases, and let chat do the grunt work.

Choose a small category list

Start with ten to fifteen categories, not forty. Every category you add makes the next statement harder. A workable starter set:

Revenue / client payments
Contractor and freelancer payments
Software and subscriptions
Office and equipment
Travel and mileage
Marketing
Bank fees and interest
Owner's draw (not an expense)

Keep categories broad enough that a transaction has an obvious home, and resist splitting "Office" into a dozen flavours until a tax return actually needs it.

Build rules, then exceptions

The fastest way to categorize is to turn repeat suppliers into rules. Your coffee-shop spend and your hosting bill appear every month - teach the categorizer to recognise the payee and the rest of the work disappears. The rule should match on the payee name and amount pattern, not a wildcard, so an occasional different purchase still surfaces for a look.

Handle the cases that break people

Transfers between accounts: not income, not expense. Mark as a transfer so your revenue stays honest.
Reimbursed client expenses: if a client repays you for a cost you fronted, split the transaction - the repaid part is not your expense.
Refunds: negative to the same category, never "other income".
Owner's draw: a distribution, not salary and not an expense.
Grey payees: a name you do not recognise should be a rule trigger to review, not auto-assigned.

Categorize from chat

You do not need to export a CSV and fight spreadsheet filters. Connect the bank-statement and expense-tracking servers and describe the work in plain words:

# once - mint a free token and paste the printed URL into your client
# https://mcp.zovo.one/mcp/connect

claude mcp add --transport http bank-statement \
  https://mcp.zovo.one/mcp/bank-statement/t/<token>
claude mcp add --transport http expense-tracker \
  https://mcp.zovo.one/mcp/expense-tracker/t/<token>

Then: "Take this month's statement, put every Stripe payout in Revenue, every Adobe charge in Software, mark the transfer to savings as a transfer, and list anything you are not sure about." The server applies your rules, flags the grey ones, and returns a clean categorized ledger you can review in minutes. See what the bank-statement server categorizes.

Review monthly, and reconcile

Categorization is only useful if it is complete. At month end, run the categorizer over the full statement and check the total against what your bank says. When the categorized total matches the statement balance, your categories are trustworthy enough to feed the P&L. Do it in the same sitting as your reconciliation so the rules you build cover next month too.

A weekly habit that beats month-end panic

The single best improvement is frequency. Ten minutes of categorizing each week (as the statement updates) beats a two-hour CSV session on tax day. Because the server keeps your rules, the weekly pass gets faster until it is mostly confirming autos and fixing the odd grey payee.

Questions

What is the best way to categorize bank transactions?

Start with a small set of categories (Revenue, Software, Payroll, Travel, Meals, Transfers, Unclear), write a rule per recurring payee, and classify everything else by hand the first month. Each month the rules cover more, so manual work shrinks to the odd grey payee.

How do I handle transfers between my own accounts?

Mark them as Transfers, never as income or expense - otherwise you double-count money moving between accounts. A categorizer rule for your own savings or card account handles this automatically.

Can bank transactions be categorized automatically from chat?

Yes. Point the bank-statement MCP server at a CSV export or statement and describe your rules in plain language; it applies them, flags the uncertain payees, and returns a clean ledger: https://mcp.zovo.one/mcp/bank-statement.

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