This has been updated so that it will first look if you have a category set, if not it will use the latest transaction entered and auto fill the category that was set in that transaction.
05/20/2013 20:59:41
Alex
User
Payee default category
Looks like using the Payees/Merchants page you can set default category for a payee. But it doesn't work, at least as I expect, - choosing a payee from the dropdown on the Add Transaction page sets category to a random(?) one.
Also setting category first then choosing payee unchoose the previous selection.