I guess I’m an “old school” guy when it comes to accounting for my personal finances. 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:
- 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.
- 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.