How AI Improves Automatic Expense Categorization in SparkReceipt

Picture of Antti


14 years of experience in software consulting. CEO for SparkReceipt.
Using AI for categorizing receipts and expenses

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Managing expenses is a task that most individuals, freelancers, and small businesses find cumbersome but necessary. Accurately categorizing and tracking these expenses can be time-consuming, often requiring a keen eye for detail and a fair amount of manual data entry. In a world where a small business owner’s time is very valuable, there’s a pressing need for solutions which not only simplify the expense categorization process but also ensures it is done with quickly and with minimal human effort.

In the recent advent of AI revolution in many industries, it is no surprise AI is becoming a great assistant for your tedious and time-consuming preaccounting and accounting tasks.

In this article we discuss how SparkReceipt will simplify your expense & income tracking by cleverly utilizing OpenAI’s ChatGPT for deep understanding of your receipt’s contents for accurate categorization.

Why You Should Use an Expense Tracking App for Auto-Categorizing Your Receipts

In the context of being a freelancer, having a small business or just being a keen individual, having a detailed and accurate understanding of your expenses is crucial. However, the manual categorization of every receipt is not only time-consuming but also prone to errors. Here’s why a receipt scanner and expense tracking app with auto-categorization features is an indispensable tool for anyone seeking to streamline their financial tracking:

They Save Your Time

Manual categorization of receipts can take up a significant amount of time, particularly for businesses that have numerous transactions daily. An auto-categorizing app can dramatically speed up this process by scanning and sorting expenses as they occur, allowing you to focus on other tasks.

They Increase Accuracy

Mistakes in financial categorization can lead to inaccurate budgeting and financial reporting. Auto-categorizing apps use algorithms to accurately sort expenses into categories, reducing the chance for human error.

They Offer Customization For More Accurate Expense and Income Tracking

Many advanced expense tracking apps allow for the creation of custom categories. This enables you to adapt the system to suit your specific needs, making it easier to manage and review your financial records.

They Reduce Cognitive Load

Keeping track of every purchase and manually sorting them can be mentally draining. An auto-categorizing feature takes care of this aspect, reducing the mental effort required in keeping your finances organized.

They Simplify Tax Preparation

When tax time rolls around, having a well-organized record of your expenses can simplify the process immensely. Auto-categorized records can be easily sorted and extracted, making tax filing less of a burden.

Adaptable and Future-Ready

As technology evolves, so will the algorithms that power these auto-categorizing features. This means that your expense tracking app can adapt to new types of expenses and methods of categorization that may arise, making it a long-term solution for managing your finances.

We have compiled a list of our top picks for receipt scanner and expense tracker apps to use as a freelancer or a small business owner.

The Problem With Traditional Expense Categorization Methods

The often-used method in most expense management software is to recognize and categorize expenses based on where you shop. This is called “a database method”, which means the software stores a long list of known merchants and their relative categorizations. However, these systems often run into trouble when they try to sort spending too generally. Take Walmart as an example—it sells everything from groceries and clothes to electronics and office supplies. If a system simply labels all Walmart spending as “groceries,” it can create mistakes in how expenses are sorted. Imagine you’re a business owner and you buy printer paper at Walmart; you’d want that tagged as an “Office Expense,” not tucked under “Groceries.” Traditional database systems can’t easily catch these finer details, making it harder to get an accurate picture of where your money is going. This lack of detail can mess up your financial reports and budget plans, meaning you’ll still have to go in and fix things manually.

The other elephant in the room with this method is that when the app encounters a receipt from a merchant unknown to the database, it cannot categorize the receipt at all.

How Modern AI Methods Help With Expense Categorization

When an expense tracker app utilizes AI that is capable of discerning categories based on the actual items purchased, the accuracy of expense categorization improves significantly. Consider these two Walmart receipts I found online as examples:

Walmart receipts

In left left image, the customer has purchased various supplies. On the right image, the customer has purchased groceries.

One receipt shows a purchase of assorted office supplies, while the other is clearly for groceries. Now, let’s take a look at how SparkReceipt’s intelligent AI categorization tackles these two scenarios:

AI automatically categorizes the receipts

SparkReceipt AI can correctly distinguish between supplies and groceries even though both expenses are from Walmart.

As you can see, SparkReceipt is able to correctly categorize both expenses based on the purchased items rather than just relying on merchant information. This intelligent categorization will also integrate with any custom categories you might have, as these too are fed into the AI as potential options for even more personalized sorting.


Managing money involves tracking what you spend, but doing this manually is time-consuming and can lead to mistakes. Traditional auto-categorization systems in use in receipt scanner and expense tracker apps often categorize expenses based on where you shop, like Walmart. This is problematic because many big stores like Walmart, Target, and Costco sell a large variety of items, from food to electronics.

The use of AI, like OpenAI’s ChatGPT in SparkReceipt, offers a better solution. This technology can looks at what was actually bought, not just where it was bought. This means it can correctly identify whether you bought groceries or office supplies, for example.

AI brings more accuracy and efficiency to managing expenses. It reduces the need to correct errors manually and can handle a wider range of stores and products. This advancement shows how AI can make important but boring tasks easier and more reliable.