Categorizing Transactions

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Overview

Categorization assigns Transactions to the correct Ledger(s) in the Chart of Accounts, ensuring accurate financial reporting and compliance.

Accurate categorization is not just good bookkeeping—it’s a legal and financial necessity. Misclassified expenses can lead to tax complications, compliance issues, and financial misreporting. Yet, manual categorization is consistently reported as one of the most tedious responsibilities for Business owners.

At Asset, we’ve built a best-in-class categorization system that reduces the time and effort required to categorize Transactions, ensuring accuracy while allowing Business Owners to focus on running their companies.

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How Categorization Works in Asset

Each Transaction that enters Asset follows a structured categorization pipeline to ensure it is correctly classified as part of a Journal Entry:

1. Transaction is Converted to a Journal Entry

   • When a new Transaction enters Asset, it is transformed into a Journal Entry.
   • The first line assigns the Transaction to the correct financial account (e.g., Chase Checking x1234).
   • The second line (which determines categorization) starts out unassigned.

2. Categorization Pipeline
   The Journal Entry moves through a multi-step process to determine the appropriate category:

   • Transfers Detection - Was the Transaction a transfer between accounts?

   • Similarity-Based Categorization - Have we previously categorized a similar Transaction?

   • AI-Powered Categorization - What does AI predict the Transaction should be?

   • Uncategorized Transactions - If no match is found, the customer provides the correct category.

3. Business Review and Finalization

   • Once the Categorization Pipeline assigns a category, the Journal Entry is ready for Business review.
   • Asset recommends that Tenants include a workflow step requiring Businesses to review and confirm assigned categories, ensuring accuracy.
   • Any Uncategorized Transactions should be manually assigned to complete the books for the period.

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Categorization Attributes in Asset

To support customizable workflows, Asset provides key attributes related to categorization:

These attributes allow Tenants to build workflows that ensure Transactions are properly categorized while maintaining flexibility based on Business needs.

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How to Update the Category of a Journal Entry in Asset:

To update the category of a Journal Entry, call the Update a Journal Entry endpoint with the following parameters and body:

Path Parameters:

• Journal Entry ID – Identifies the specific Journal Entry to update.
• Business ID – Specifies the Business where the Journal Entries needs to be updated.

Request Body:

• Description – The description of the Journal Entry.
• Line Changes – Allows modification of the Journal Entry’s line items:
  • Create Lines (Optional) – Add new line items with the following fields:
    • Ledger ID – Assigns the Ledger (category) for the new line item.
    • Description – The description of the line item (max 512 characters).
    • Debit/Credit – Indicates whether the line is a debit or credit.
    • Amount – The line amount in decimal dollar cents (must be positive).
  • Delete Lines(Optional) – Removes existing line items by providing their Line Entry IDs.
• Needs Review (Optional) – Sets whether the Journal Entry requires review.

Once updated, the new category will reflect in the application.