Online Banking and Your Accounting Software

Recently I have had many clients asking me about online banking. I don’t mean accessing your information via a web portal, but rather downloading their bank and credit card statements into their accounting software. As such, I thought I would address some of the biggest concerns and shed some light on this procedure.

To start with, from an accounting standpoint we have to answer the question: Why do we reconcile our bank statements? The answer that any accounting student with just one class under their belts should give is to serve as a check and ensure that our books match those of an outside entity (the bank or credit card). This answer implies that we have already done our jobs as bookkeepers and entered all our transactions into the accounting software or ledgers which are then checked against the banks records. Therefore, when we reconcile, we are actually verifying that no data entry errors exist and also performing a double check that no one has written something against our account which is unauthorized.

Now let’s look at what most business clients are actually doing. They are not entering anything into their accounting software. But rather, they are waiting for transactions to show up on the appropriate statement or online and then they push those transactions into their accounting software. This process ensures that their books match those of the bank, however, it circumvents the checks and balances process and takes the banks word about what happened. Now in this modern day, banks are all computerize and have their own checks and balances. One might argue that they would not make a mistake, so what is the harm in taking their word for it…

This is a very common misconception. The reality is that just like any other company which uses humans or complex software and algorithms, banks do make errors, and probably more often than anyone would like to admit. I just recently had a bank cash a check with was written for $1,000 for only $100. The reason given was that the number looked like 100 and the teller didn’t bother to look at the written explanation on the check. Grant it, this happens less frequently with the printed checks then it used to, but the fact that it still exists remains.

So the real solution to almost all issues arising from syncing errors for online banking is to do your homework. Have someone in the office or an outside bookkeeper key in the information or at least verify it before downloading into your system. Then when you go to do an online reconciliation, it will in fact be a double check and not an “accept on faith” proposition.