| --- |
| title: Automatic Categorization |
| description: How Midday uses AI to categorize your transactions and how categories affect your metrics. |
| section: banking |
| order: 4 |
| --- |
|
|
| Every transaction that flows into Midday is automatically categorized using AI. This saves hours of manual work and keeps your books organized for accounting. |
|
|
| ## How it works |
|
|
| When a new transaction arrives, Midday's AI: |
|
|
| 1. **Analyzes the merchant**: Identifies the company from the transaction description |
| 2. **Checks your history**: Looks at how you've categorized similar transactions |
| 3. **Considers patterns**: Factors in amount, frequency, and context |
| 4. **Assigns a category**: Picks the most likely category |
|
|
| The AI learns from your corrections. The more you use Midday, the more accurate it becomes for your specific business. |
|
|
| ## Category structure |
|
|
| Midday uses a two-level category system designed for business accounting: |
|
|
| ### Parent categories (14 total) |
|
|
| 1. **Revenue** - Income from your business |
| 2. **Cost of Goods Sold** - Direct costs of products sold |
| 3. **Sales & Marketing** - Customer acquisition costs |
| 4. **Operations** - Day-to-day running costs |
| 5. **Professional Services** - External expertise |
| 6. **Human Resources** - Team costs |
| 7. **Travel & Entertainment** - Business travel |
| 8. **Technology** - Software and subscriptions |
| 9. **Banking & Finance** - Financial transactions |
| 10. **Assets** - Capital purchases |
| 11. **Liabilities & Debt** - Obligations |
| 12. **Taxes & Government** - Tax payments |
| 13. **Owner / Equity** - Founder transactions |
| 14. **System** - Uncategorized and transfers |
|
|
| ### Subcategories |
|
|
| Each parent category contains specific subcategories. For example, Technology includes: |
| - Software |
| - Non-Software Subscriptions |
|
|
| [See all categories and subcategories →](/docs/categories-reference) |
|
|
| ## Excluded categories |
|
|
| Some categories are "excluded" from burn rate calculations to prevent double-counting: |
|
|
| | Category | Why it's excluded | |
| |----------|-------------------| |
| | Credit Card Payment | The purchases on your card already count; the payment would be double-counting | |
| | Internal Transfer | Moving money between accounts isn't spending | |
|
|
| This happens automatically. Your burn rate and runway calculations stay accurate. |
|
|
| [Learn more about how categories affect metrics →](/docs/understanding-metrics) |
|
|
| ## Changing a category |
|
|
| If the AI gets it wrong: |
|
|
| 1. Click on the transaction |
| 2. Select the correct category from the dropdown |
| 3. Save |
|
|
| ### What happens when you correct |
|
|
| - The transaction is recategorized immediately |
| - The AI learns from your correction |
| - Future similar transactions are more likely to be categorized correctly |
| - Your financial metrics update to reflect the change |
|
|
| ## Bulk categorization |
|
|
| For multiple similar transactions: |
|
|
| 1. Go to [Transactions](https://app.midday.ai/transactions) |
| 2. Use filters to find the transactions (e.g., filter by merchant name) |
| 3. Select multiple transactions using checkboxes |
| 4. Choose **Categorize** from the bulk actions menu |
| 5. Select the category to apply |
| 6. Confirm |
|
|
| This is useful for: |
| - Fixing multiple miscategorized transactions at once |
| - Categorizing a backlog of transactions |
| - Applying consistent categories to recurring expenses |
|
|
| ## How the AI learns |
|
|
| ### Merchant patterns |
|
|
| The AI builds patterns based on merchant names: |
|
|
| - "SPOTIFY" → Technology > Software |
| - "UBER" → Travel & Entertainment > Travel |
| - "AMAZON" → Depends on your history (could be office supplies, software, etc.) |
|
|
| ### Your corrections |
|
|
| When you correct a category: |
| - That specific merchant pattern is updated |
| - Similar merchant names benefit from the learning |
| - The AI weighs your choices higher over time |
|
|
| ### Team patterns |
|
|
| The AI learns from your entire team's categorization choices, building a model specific to your business. |
|
|
| ## Categories and financial metrics |
|
|
| How you categorize transactions directly affects your reports: |
|
|
| | Metric | Affected by | |
| |--------|-------------| |
| | Revenue | Transactions in Revenue categories | |
| | Burn Rate | All expense categories except excluded ones | |
| | Profit | Revenue minus expenses | |
| | Cash Flow | All income and expense categories | |
|
|
| Accurate categorization means accurate metrics. |
|
|
| ## Categories and accounting |
|
|
| ### Export to CSV |
|
|
| When you [export transactions](/docs/export-transactions-csv), categories are included. Your accountant can map them to their chart of accounts. |
|
|
| ### Export to accounting software |
|
|
| If you connect [Xero](/docs/connect-xero), [QuickBooks](/docs/connect-quickbooks), or [Fortnox](/docs/connect-fortnox): |
|
|
| - Categories map to account codes |
| - You configure the mapping during setup |
| - Transactions export with the correct account mappings |
|
|
| ## Tips for better categorization |
|
|
| ### Review regularly |
|
|
| - Check new transactions weekly |
| - Correct any miscategorized items promptly |
| - The AI learns faster with quick feedback |
|
|
| ### Be consistent |
|
|
| - Use the same category for the same type of expense |
| - Don't switch between similar categories (pick one) |
| - Consistency helps both AI learning and your reports |
|
|
| ### Use tags for detail |
|
|
| Categories are intentionally broad (for accounting). Use [tags](/docs/use-tags) for additional detail: |
|
|
| - Project names |
| - Client names |
| - Tax deduction status |
| - Department codes |
|
|
| ### Handle ambiguous merchants |
|
|
| Some merchants (like Amazon) could be many categories: |
|
|
| - Office supplies |
| - Software |
| - Equipment |
| - Personal (shouldn't be here!) |
|
|
| Correct these carefully. The AI will learn that Amazon transactions from your account might be different from another business. |
|
|
| ## Common questions |
|
|
| ### Can I create custom categories? |
|
|
| Midday uses a standard category set that maps to accounting charts of accounts. This ensures consistency for exports and integrations. Use tags for custom groupings. |
|
|
| ### What if a transaction fits multiple categories? |
|
|
| Choose the primary purpose. For example: |
| - A laptop is Equipment, not Technology |
| - Conference travel is Travel, not Marketing |
|
|
| ### How do I handle personal transactions? |
|
|
| If a personal transaction accidentally appears: |
| 1. Categorize it appropriately (or use "Other") |
| 2. Consider excluding it from reports |
| 3. Discuss with your accountant for proper handling |
|
|
| ### Why did the AI categorize this wrong? |
|
|
| Common reasons: |
| - New merchant the AI hasn't seen |
| - Ambiguous merchant name |
| - Similar merchant to one you categorized differently |
|
|
| Correct it once, and the AI will learn. |
|
|
| [Full category reference →](/docs/categories-reference) |
| [How categories affect metrics →](/docs/understanding-metrics) |
|
|
