Dustin Wheeler

Dustin Wheeler
Dustin is a technology-driven CPA in Orem, Utah.

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Are Bank Import Features Driving Reconciliations to Extinction?

I guess I’m an “old school” guy when it comes to accounting for my personal finances.Shot in the back by Bank Import I enter transactions into QuickBooks in real time.  Whenever I write a check or pay a bill online, they immediately go into QuickBooks.  I save all of my receipts, put them in a folder, and enter them in batches at least once a week.  These are important processes for me because I am always aware of the amount of cash I have available despite the balance that shows when I log into my bank’s online banking website.

Once a month, the bank statements come (electronically, of course).  I reconcile the transactions I entered manually to the bank statements.  Whenever there is either a discrepancy or an transaction on my bank statement that is not in QuickBooks, I investigate it.  Usually, it is because a receipt is still at the bottom of a plastic bag from a grocery store.  Sometimes, though, I have discovered errors or other things that resulted in me getting a refund during the process of reconciling bank statements.

Recently, I have been experimenting with a few SaaS (web-based) accounting software tools (go to fellow CPA blogger Shane Eloe’s blog for some useful reviews).  Most of the SaaS accounting systems I have tested do not have the ability to reconcile bank accounts, but they do import and/or sync with bank transactions.  So, are we near the time to say goodbye to the bank reconciliation as we know it?

I think the bank import and sync features can be big time-savers and eliminate much of the drudgery that goes along with redundant data entry.  Data such as the date, payee, and amount are automatically imported, leaving it up to the user to classify the transactions.  With some of the SaaS software packages, the program learns from past experience to automatically classify transactions and matches up the data being imported with what the user has already entered to eliminate duplicate entries.  Awesome stuff.

My concern is that over-reliance on the online banking features and not reconciling bank accounts will lead to problems.  A user that imports bank transactions instead of entering them as they happen will not have the same grip on cash flow.  That user would probably also be more inclined to just accept what is on the bank statement rather than verifying that the bank activity is correct.  For a user that uses one of these SaaS accounting software packages for a business, it raises all sorts of questions for the CPA or accountant who prepares the tax return:

  1. What if the cash balance on the balance sheet is significantly different than the ending balance on the bank statement?  Without a bank reconciliation, determining the reason for the difference would be a nightmare.
  2. How does the tax preparer know that there were outstanding checks or online transactions that occurred and are deductible in a given year, but did not clear the bank (and therefore not imported) until the next year?

If you’ve discovered a solution to these problems and questions, I’d love to hear from you.  Please leave a comment below.

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4 comments to Are Bank Import Features Driving Reconciliations to Extinction?

  • Great question and thoughts Dustin… one that I’ve been thinking about myself for a while now. IMHO bank reconciliation is dead for me on a personal level… along with the death of checks. For my personal finances, we rely heavily on Mint.com (automatic pull of financial information from banks) to collect all of our expense records. I cannot remember the last time I wrote a check because almost everything goes through our credit card (30 delay on payments plus maximum cash back rewards) and the credit card payments are paid ACH via our bank accounts each month. I don’t set up automatic credit card payments because that’s when I do my visual audits of all expenses… pretty easy to identify them at a bird’s eye view.. if not, I consult my wife. :)

    From a business level; however, I suspect the death of bank rec may be delayed for another 1 or 2 years (maybe more, but not much more.) As our online accounting SaaS become more real time (think automatic feed on a real time basis instead of a “pull and sync”), as more companies switch to automatic ACH debits and as more electronic invoices allow us to pay instantly with a click of a button… then bank rec will surely be dead (or at least reduced to a nice-to-have monitoring role.) For now, although the pull and sync feature can save significant time in our month end processes, I believe a reconciliation is still needed for the reasons you’ve stated – identifying “checks” or “transactions” that should really be recorded this month and not the next and identifying bank errors (or lapping.)

  • Michael, I agree that as banking activity becomes more real time and paper checks are eliminated from the system, the value of the bank reconciliation diminishes. Thanks for sharing your thoughts.

  • On the personal side, I’m very similar to Michael. I use ING Direct for my banking and when I do have to deal with someone that needs a paper check (frequently governmental entities) I can send the check directly from ING (I can send checks, but I don’t even have a checkbook). They draft the check from my account when it it sent, creating the electronic trail, then they track when it actually clears. The checks are marked to void after 90 days or so.

    Now businesses may have a cash management purpose to hold on to paper check writing, which will keep reconciliations around. A paper check lets you write a check even when the bank account is empty (provided you can refill it before the check clears). An ING Direct paper check will only write if you have the funds before you write the check.

    Don’t forget the other side of the reconciliation either – deposits in transit. Many businesses will still be accepting cash and checks for payments, but will not have a “real-time” way to put these into the bank account (at least for cash since checks can be converted to e-checks at the POS). Not counting deposits in transit would also cause you to understate your taxable income for the year – it’s when you have the cash or check, not when it’s in the bank that counts.

  • What an interesting blog topic! I guess I fall in the middle on this issue. Personally, I like being able to sync with my bank so I don’t have to do all the data entry. Most of my business purchases are on a debit card (I’m not a big fan of credit cards). It saves time by doing a weekly sync with my bank. However, like you mentioned above I don’t “trust” the bank, so I follow a “trust but verify” approach. First, I sync with the bank and then I go back and attach my receipts to QuickBooks. While attaching copies of receipts, deposits, etc. I can verify the amounts and make sure all of my receipts & deposits have been accounted for. Maybe it’s because I can’t give it up, but I still reconcile on a monthly basis because it’s another good double check that everything has been recorded.

    QuickBooks or whatever accounting software is only as good as the information you have recorded. Even though technology is great and makes our lives easier, it is easy to become too dependent on it. I strongly believe that by taking a proactive approach while using technology is the best way to go.

    Thanks for another great blog post!

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