For decades, bookkeeping has been a headache for entrepreneurs who have just started their own businesses. Bookkeeping has typically required a decent accounting background to fully understand accounting terms in order to correctly book business sales and expenses. Fortunately, the process has become easier for today’s entrepreneurs due to the bank feed features offered by most updated bookkeeping software.
So, what is a bank feed? Bank feeds are a feature in which your banking transactions are automatically downloaded and categorized for you by accounting software such as QuickBooks Online and Xero. In the past, your accountant probably taught you that bookkeeping requires three steps for many start-up businesses:
- Manually enter details of payments as they are made or deposits as they are received.
- Categorize each transaction
- Do a bank reconciliation line by line to determine all transactions that cleared the bank are accounted for, all payments recorded either cleared the bank or are known to be outstanding, and all deposits have cleared the bank or are known to be in process.
With the bank feed option, you can partially automate this process:
- Let the bank feed download transaction details to your accounting software reducing your manual entry.
- Then you categorize those transactions by matching to pre-existing payments/deposits you already recorded, if you are doing real time accounting or just add the transaction if you are doing “after the fact,” accounting.
- Review if there are any duplicated or missed transaction by performing a bank reconciliation. We recommend doing that monthly.
We recommend using cloud based accounting systems which both have the bank feed feature and allow your accountant and/or tax preparer to have immediate access to this same information through your bookkeeping website. This can reduce the information requested from you when it comes time for your tax return to be done. If you are recording your transactions by bank feed your tax preparer will have a lot of what they will need already at their disposal and your accountant will easily be able to make changes in the software as needed.
Does it sound too good to be true? Well here is a key tip to get the most efficiency out of your cloud based accounting system with bank feeds. Pay as many of your bills by either credit card, debit card or electronic bill pay system, so that the bank can record partial transaction details from vendors. Remember, the bank feed isn’t able to download the check image from the bank, which means paying by check isn’t the optimal option.