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I’ve seen many sales pages for accounting software and the number one promise has to be how they’ll save you an immense amount of time and frustration. And the way most accounting software aims to achieve this is to connect to your bank account, import your bank statement, and automatically enter transactions for you. Have a look for yourself at the sales pages of QuickBooks, Wave Accounting, Outright, Kashoo, LessAccounting, Xero, Clearbooks, and other accounting software.
This connection to your bank might be promoted as “automated bank import”,“automatic online banking”, “automatic entry of data”, “bank auto connect” or “auto-sync to your bank”. The goal is the same: automatically enter your bank statement transactions into your bookkeeping records. Some of the more advanced software is even able to automatically categorize transactions for you, meaning that a coffee purchased at Starbucks would go into the meal expense category while some printer paper bought at Staples would go into the office supplies category.
When this automatic import and entry of banking data does work, it is magical! However, it won’t work 100% of the time for the following reasons:
- Your bank simply might not allow your accounting software to access your bank data.
- If your bank does give access, the data may not be in a format that your accounting software can import.
- If you bank and and accounting software are able to connect, banks only give 2 weeks to 2 months worth of data. This means that if you have any data that is more than a few weeks old, you will need to find an alternate way of importing the data.
- Your bank and accounting software won’t be able to connect every time, just like how you can’t always get cell phone reception all the time.
- As smart as computers are, they won’t be able to categorize your financial transactions into the proper accounting categories with 100% accuracy. Take that paper bought at Staples an example. The paper could be office supplies, but if you used it to print flyers, it could be an advertising expense. Accounting software does not know the correct categorization all the time.
- Accounting software won’t split transactions. Splitting a transaction means that you categorize a transaction into more than one category. An example is if you bought both Microsoft Office and some printer paper at Staples. The paper would be categorized as an office supplies expense while Microsoft Office would be categorized as a software expense.
- The majority of accounting software cannot automatically separate out taxes on a purchase. For people living in countries that require them to record the taxes on items purchased, this is an important part of entering bookkeeping transactions. Even when software can separate out taxes, it won’t get it right all the time, since some goods aren’t taxed or have different tax rates.
- Your bank statement has limited transaction details, meaning it doesn’t alway contain all the information you’d want to enter into your bookkeeping records. For example, a bank statement usually contains a date, amount, and name of vendor. It doesn’t include the details of what was purchased, taxes paid, shipping costs, and so forth. These are details you’ll need to look at a receipt to get.
As you can see, there are many reasons why the automatic entry of data into your accounting software won’t reliably work all the time. So, no, your bookkeeping tasks won’t all be done by your accounting software. But, accounting software can make the bookkeeping process easier, faster, and more accurate.
Here is what you can do to take advantage of your accounting software’s ability to work with data provided by your bank:
- Even if your accounting software cannot automatically import transactions from your bank, you can still manually download data from your bank and import those transactions yourself. This means logging onto your bank’s online banking system and downloading statements. Some online banking sites lets you pick the time frame, like from July 2 to July 20, where others only let you download a monthly statement, such as for the entire month of July.
- Before choosing your accounting software, make sure it can handle the data format(s) provided by your bank’s online system. The most popular formats are CSV, QIF, QFX, QBO, and OFX. You can’t import a PDF into your online accounting software.
- Let your accounting software partially fill out transactions. When you import an electronic bank statement, some online accounting software can pre-fill out transactions for you, with the date, amount of purchase, vendor name, and of course the bank account from which the money was taken out of or put in to.
- Let your accounting software help with reconciliation. Reconciliation is the process of matching your bank statement to your bookkeeping records. With an electronic bank statement and the right accounting software, the matching (reconciliation) can be done automatically for you. It might not automatically match all the time, but if you entered your bookkeeping records accurately, it should save you a lot of time spent manually matching numbers. When reconciling your books, do make sure to double check your data for these five things:
- number of transactions
- total $ value of money going in
- total $ value of money going out
- beginning balance
- ending balance
I do think that accounting software will get to the point where it can do the majority of data entry for you. I say majority, since some accounting data is always bound to be missing or incorrect. There will be the need to manually enter some things and there will always be the need to review your bookkeeping records.
The future of commerce is in cashless money transactions. These are electronic payments done online, through chipped debit and credit cards, or through mobile devices. Electronic payments can attach more data to each transaction than what your bank currently attaches to your bank statements.
There is currently no global standard in the type and format of data attached to financial transactions. This causes a problem for accounting software since there’s no standard on how to treat and import the data. So, either a financial transaction standard needs to be created or accounting software needs to get smarter at importing data from different sources and format. It’s probably a combination of both that needs to happen.
Even though the automatic entry of banking data into accounting software doesn’t work all the time, it’s still a time-saving feature. Just don’t count on it do all your work for you all the time.
If you like this article, you might be interested in our reviews of online accounting software.
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