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Today's business banking accounts operate much the same as personal current accounts apart from the fact that everything you do is charged and you can open it in a corporate capacity.
The reporting provided is useful for bank reconciliation as it has a list of transactions, their values, and balances.
Unfortunately,
bank statements are not sufficient for use as business accounts for regulatory purposes. Interestingly however, in the UK a number of accounting firms will produce you a set of accounts based upon little more than your bank statements and payroll records.
It seems to me that the bank is missing a trick. Simple innovations could turn bank statements into full sets of accounts. Here's what I've come up with:
a) Multiple account numbers for different ledgers... if it's coming out of the marketing budget then use the marketing account / cheque book
b) Multiple pin codes for cards or just multiple cards... each recording a different transaction type
c) ATM withdrawals (or OTC cash) to require selecting a ledger and a purpose for withdrawal
d) POS information to be fully recorded and kept at the bank for card transactions
e) Cheques to have additional ledger / cost code / type boxes on the back and a statement on the front that the cheque is only valid if those boxes are completed. (When cheque is sent to issuing bank for verification, the data can be captured and the cheque recipient recorded).
f) Where possible, banks can work with POS equipment retailers to facilitate more complete data transfer (full item lists, etc.).
The general aim here is that, as much as possible, all transactions get assigned to an appropriate ledger as they happen and the bank retains the audit trail electronically.
As an example, a salary cheque would be marked 'payroll' on the back with the employee's ID as reference code. An EFT would require the same data at output time.
Any strange transactions which won't fit the system would need pre-arrangement with the bank.
At the end of your accounting period, the bank then sends you a full set of accounts for you to forward to your auditor, who in turn has access to the electronic audit trail the bank has captured as it went along.
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Nice idea but it wouldn't work for a number of reasons.
Firstly, the chances of getting everyone to use the correct card, pin number or cheque book when paying for stuff is absolutely zero.
Secondly, the bank has a legal obligation to process a payment regardless of whether your coding information has been filled out correctly.
Thirdly, most 'accounting' accounts are done on an accruals basis rather than on a cash basis.
Finally, in order for your bank reconciliation to work, coding the payments needs to be done when the payment is issued (i.e. when the cheque is written out or the BACS file is compiled), not when it is cashed.
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Dr Bob, perceptive points. Mistakes happen with all accounting; that's the role of the auditor. |
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Cash basis accounting is very interesting in that it is becoming increasingly the norm for many forms of small business accounting, at least in the UK. For field such as VAT, it is now strongly advised. |
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BACS payments can be coded as they go out - the bank always knows about this. You are right about the lag for cheque payments; but given the substantial time periods for preparation of accounts following the end of an accounting period, it should be possible to declare any cheques not presented by then as past validity. |
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//Dr Bob, perceptive points.//
That'll be why I'm the Financial Systems Manager then!
I agree that this might be a useful tool for a small business but it would be fairly wreckless to rely on it. Banks make mistakes the same as everyone else (more often in my experience). And it would just create extra admin work for a large organisation.
Regarding the role of the auditor. Their job is to check that the accounts have been completed accurately, in line with legal accounting requirements and that they represent a fair view of the state of the company. It's not their job to correct mistakes, just to point them out. It is the company's responsibility to ensure that it's accounts are correct. |
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Apparently the US Department of Defense uses cash accounting, which conveniently makes the Iraq war look slightly less terrifyingly expensive (see link). |
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Possibly, cheque payments could be discontinued for these accounts. For the smaller business, doing without cheques (instead setting up BACS online or using debit cards) is quite feasible. Look forwards to hear more opinions on this idea! |
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I do my own accounts and this would just duplicate what i'm already doing. If an accountant did them, it would still be the case. I can't imagine the bank not charging for this and i would then be paying them for work that I had done, or for other businesses for work an accountant had done. |
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It probably makes sense for a bigger business, but i can't see that it does for this one, which is a very small partnership. |
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I'm probably missing something. Is there something extra here? Is it to keep track of fraud and embezzlement? |
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Oh f*ck, it's the third of April, isn't it? Well that's the end of my interaction with the HB today then. This is going to be fun (not). |
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//Apparently the US Department of Defense uses cash accounting//
As does the UK Government, although they intend to go over to accruals in the near future (allegedly). |
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//I do my own accounts and this would just duplicate what i'm already doing.//
I guess what you're missing is that you wouldn't need to do the accounts. You get more time to do whatever it is you do (i.e. do business) and the bank deals automatically with the accounting requirements. I guess it does differ between people, but I personally find running a growing business and keeping accounts myself an unnecessary pain. |
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As for charges - think of the time you spend on book keeping and accounting and cost that up. |
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The devil is definitely in the details, but I think the underlying suggestion, that banks provide and facilitate accounting services for clients, is an excellent one. |
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Just look at how credit card statements have been geared towards people making business expense claims. |
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Definitely not on-task here - oh dear. |
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Anyway, i would prefer to do my own accounts because i'm a control freak. I want to do as much for myself as possible rather than handing it over to someone else. I don't like the idea of a bank, which might make mistakes, then producing accounts with those mistakes in them as well. There would have to be some kind of mutual autonomy between the two sets of service, which is similar to having an accountancy practice run by a bank. |
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[vince^three], i take your last point and i'm bad at that. However, it isn't money that i would see otherwise. I'm seriously underemployed. |
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Until recently I was doing accounting in a UK NDPB and we were in the process of switching from cash to accrual accounting. Jolly good fun bringing our civil service colleagues into the real world. |
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3V - Quite a sensible, reasonable idea but agree with the Dr, the methods you have proposed are unrealistic in their application. Separate pin codes, cheque books? Too hard in an organisation of moderate size. |
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If however the bank offered a service where you could reactively assign costs in an accounting system linked to your bank transactions - this is quite feasible. + |
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Bank Leumi in Israel offers an online accounting app, free of
charge. Its not at the ATM level though, and you have to go
back and assign a reason and category for your listed
transactions. It can, however, according to date, amount
and recipient, determine reoccurring transactions. |
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