Mirror mirror on the wall, which is the fairest of them all?
After being trained in the accounting basics, the traditional role for a junior accountant would be to prepare a bank reconciliation. This means checking that the business’s records match those that the bank holds.
Knowing how much cash is in the bank is pretty much a critical KPI for any business — if you can’t pay your bills as they fall due, you could be insolvent. That’s the technical term. In lay terms, you’re f***ed.
And not so long ago the business records were the ones that could be relied upon. A cheque would be received in the post, matched to the invoice it relates to, written up in the cash book, paid into the bank using a handwritten paying-in slip, which a clerk would then enter into the bank’s systems. A few weeks later a statement would arrive, someone would open it and stamp it, and it would be the job of the junior financial accountant to prepare a reconciliation to explain why the bank records several weeks earlier didn’t match the ones the company held.
Most of the errors would be timing, but we were also trained to pick up human errors, such as when numbers were transposed — £14 instead of £41 etc. (Tip — the difference being reconciled would be divisible by 9). These mistakes were as likely to have been made at the bank as at the business.
But there’s been a complete transformation.
Whereas before the business records were the accurate ones, now the bank will typically know about a transaction before a business does. The funds will be transferred electronically into the account — which means the finance team will go to the bank to learn about what’s going on. And of course the transactions can be downloaded without needing manual re-entry.
The increased reliance on the accuracy of bank data both pushes enhanced responsibility onto them, and changes the way we think about transactions. Innovators recognise this — though a lot of accountants we meet both in practice and industry haven’t yet adapted. They must.
This applies equally to personal transactions, and we’re going to see new services offered that go much deeper into the meaning of transactions in the bank account itself. Companies like FLUX are offering receipts and line item detail, and untied will be making the most of this in order to automate tax return preparation even further.
There’s been a 180 degree change, from checking the bank matches the business to the other way round. Those that recognise this will be the ones that reduce admin, have better control of their numbers, and succeed.
