Once you've uploaded your bank transactions into FreeAgent, you'll need to explain each transaction. Here's how.
How do I know which transactions need explaining?
If your bank account is set as a business account, so the box indicating that it's a personal account is not ticked, then you'll see all the unexplained transactions in red, and also, throughout the software, you'll see warnings that you have unexplained transactions. And next to the bank account's name on the list in Banking, there's a number which is how many transactions need explaining.
OK, please show me how to explain a transaction.
Go to that bank account by choosing Banking and clicking on the bank account's name on the left-hand menu.
FreeAgent tells you when the oldest unexplained transactions happened. It's a good idea to explain transactions in chronological order if you can.
Go to the month with unexplained transactions.
As I mentioned, all the unexplained transactions are in red.
Click on a transaction to explain it.
Transaction Type
The first field to choose is the Type. Choose from the types under Money In and Money Out.
If you've forgotten whether this transaction is money coming in or money going out, look at the top of the screen here, to see.
I don't know which type to choose.
Fear not, help is at hand.
I'm going to put in a payment that's not for a bill that I've already entered into FreeAgent, to buy some stationery at Staples. So for that I would use type Payment.
When and how much?
FreeAgent will already have completed the date and the amount of the payment, from the upload.
You may need to change the amount if you're splitting the transaction. Please see the separate articles about how to split a transaction.
Category and VAT
Choose the category for the payment. Choose carefully and if you're registered for VAT, make sure that you choose a category in the right area, standard or zero VAT, if you want FreeAgent to automatically calculate the VAT for you.
I'm going to choose Stationery, which is usually standard-rated for VAT.
If you need to put something in a category and manually alter the VAT, usually because you're not entitled to claim some input VAT on a particular transaction, look at the VAT drop-down menu.
The default is that FreeAgent automatically works out the VAT depending on what category you've chosen.
But you can set the VAT to any of the UK rates, or, if you need to enter the amount manually, choose Amount, and type the VAT into this new box here, which appears when you choose the Amount option from the VAT menu.
Description and image
Put in a description of what the payment was, like this. This is in case your accountant needs more notes, or your books are inspected by HMRC.
And if you want to, you can upload a scanned image of the receipt, and enter a receipt number, and, if it's a payment, re-bill the payment to a client as part of a project. Please see our separate article here for more information about re-billing payments.
Other similar transactions
At the bottom of the screen, FreeAgent has identified other unexplained, future transactions which have the same reference on the bank statement as this one. If you want to explain all these transactions the same way as you have this one, using the same type and category, you can tick this box here.
That's it. You've explained the transaction.
You now need to work through all your transactions explaining them.
If you discover that you've explained a transaction incorrectly - simply click on it from the list under that account in Banking and edit it there.