quickbooks

It’s About Timing: Bank Feed Accounting vs. Manual Entry and Match

There is a progression towards bank feed accounting, which can be defined as waiting for transactions, many times automatic ones, to hit the business bank account, and then posting them through the bank feed activity (in the featured image, these would be the transactions that have “Add” at the end, versus “Match”). Account categorization (what account the expense or income is posted to) is generally done via bank rules or manually, in the bank feed screen (beware of blindly accepting the suggested posting account under the category or match column – this is just a suggestion, and can lead to posting a number of transactions to the incorrect account).

Bank Feeds Add vs Match

For businesses that proactively stage recurring/memorized transactions for frequent transactions, or who manually enter in receipts and other transactions as they occur, they would be posted upon entry, and then “Matched” when they clear the bank. Matching does not impact the date of posting, and instead pre-reconciles these transactions by marking them as cleared.

For many businesses, bank feed accounting seems straightforward and the way to go. It’s definitely more convenient, and for many cash-based businesses, staging bank rules vs. memorized transactions may be fine. It efficiently deals with nuance around posting date (such as when a transaction posts to the 13th instead of the 11th), and it takes work off of your plate long term. On the face, it may look like the two methods are one and the same, and spending time manually posting or scheduling transactions is not needed.

This is not always true, and it comes back to a main tenet of accounting: Timing.

Accrual-based accounting means that expenses should be posted when they are incurred or used. For example, you pay for your insurance policy in 12 month chunks. You would post the originating transaction to Prepaid Insurance, and mete the monthly chunks out to the Insurance Expense account monthly (use a memorized transaction to keep it easy on yourself), as the benefit is used/recognized.

Cash-based accounting works a little differently. Generally speaking, if the expense is for a period of 12 months or less, you would post it when paid. Longer term expenses work differently. If you have an expense paid in chunks of more than 12 months, speak to your accountant about the tax implications and posting.

So, if you paid an accrual-based policy, you would need to make sure that you split your bank feed rule or transaction accordingly. It would be more convenient to enter the bill when paid, and to match the transaction after it hits the bank feed (IMO).

The other consideration stems from paper checks. You send a paper, handwritten (since printed ones would presumably already have been posted) check on the 20th. It doesn’t clear until the following month. It was paid, by you, in the previous month. If you wait until the bank feed comes around then you’ve now posted the check in the wrong month.

Many differences in bank feed accounting are minor, but there are more considerations for the business that is accrual-based, thereby requiring a little more work on posting, as well as timing. Cash-based businesses can also be impacted, depending on what kind of transaction it is.

In both methods, you would also want to “touch” the transaction again to attach the relevant backup, unless you have a 3rd party app that will attach it for you. (I’m a fan of posting backup directly to transactions for ease of research). My suggestion would be to use the method that most closely aligns with your needs and business, and then to thoroughly review your reports at month end to ensure that everything is consistent and shows an expected result.

 

0 comments on “It’s About Timing: Bank Feed Accounting vs. Manual Entry and Match

Leave a Reply

%d bloggers like this: