One of the common features of Quickbooks online and other accounting software is the bank link feature. Due to it being a feature of the software many people (including bookkeepers) use it without thinking if it’s accomplishing what you need to know.
The goal of a bank register or credit card register is for you to know your current balance, or in other words, how much money do you have to spend or do you owe? The way you know this is to enter the transactions as soon as it happens and attach a receipt as backup documentation. The backup should be attached so you can prove the purchase and that it was for the business.
While downloading transactions is convenient and assists in classifying transactions it won’t always give you an accurate balance. Here is why.
- It won’t have outstanding checks. While I realize checks are not written as much as in the past they do still happen in some cases. You will still have vendors that don’t accept credit or debit cards, or maybe the fee they charge in addition to your bill isn’t worth absorbing for the convenience of the card. You want to record the check as you write it because you want an accurate and real time balance in your register.
- You aren’t getting the real time tax advantage you could get. There are situations where you pay a vendor but it may not clear your bank for a couple of days. This can happen with a bank or credit card. We’ve all seen those pending transactions on our account. Something else that could happen is a company may not batch their credit card machine and the transactions don’t process. You are allowed to claim those transactions as a tax deduction when you pay them. This is most important at year end. You want the tax advantage of each item you have paid. If you don’t book your transactions in your accounting software in real time you could loose out on tax savings.
- You may not be including cash transactions. Remember that time you were at the unexpected store and for some reason you paid cash? If it was personal cash you should be reimbursed. If it was business cash the transaction needs to get entered and classified. Either way, you want to make sure it is entered. I once had a client who paid me cash to teach him and some employees Quickbooks. Later when I was reviewing his bank registers I noticed that cash transaction wasn’t entered. That customer was loosing out on being reimbursed if it was personal cash and the business missed out on knowing they actually paid more for training and missed out on the tax deduction. (I did point out the error to them when I found it.)
- A bank or credit card company can make an error. I have a customer that I do their bookkeeping. I made a payment on one of their loans. When I reconciled the loan account I noticed that the payment wasn’t posted by the bank and I noticed we had been charged a late fee. I went back to my bank register because I wanted to make sure I had done it correctly. I accessed the transaction in my Quickbooks bank register, accessed the attached receipt, and verified it was done correctly. The bank did not record the payment correctly. When I inquired on it, they found that they had recorded the payment to a different loan. They had to reverse the error and the bank fee they charged us. This isn’t the only time I have found bank errors. If I just download the information I would of never known the mistake occurred. The customer would of lost out on a $600 dollar payment against their loan, and would of been charged a $60 late fee.
- If you just download information you could miss fraud. I can’t tell you how many times fraud has been caught through a reconciliation. Either we find transactions made by an untrustful employee, or we find someone that stole the account # and used it illegally. If you just download information and let the system classify you could be loosing money unknowingly.
While the link and download feature are convenient it does carry risk, lack of accuracy, and can have lack of documentation. Are these risks you want to take?
Reach out to me if you want to discuss this further, or to have me do your books correctly. That’s why I’m here.
-Tricia
Owner of Healthy Accounting, LLC