---
trigger: model_decision
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.
