Why “Connected Accounts” Doesn’t Mean Your Books Are Accurate

Connected accounts are powerful. You set up your favorite accounting software, connect your bank account and sit back and relax. Transactions are flowing in, you’ve saved yourself countless hours of manual entry and everything looks good.

But here’s where the problems start to creep up on most people. 

What are “Connected Accounts?”

You know that you’re linking accounts together, but there’s far more going on in the background that remains a mystery to users. Platforms are granted permission to access your account information, and then they start to import transactions.

Software records the information it’s given, but there’s no way to verify these records.

Depending on the software and how you set it up, it may or may not categorize all of the transactions.

Where Linked Accounts Go Wrong

If you connect an account and allow the software to go on full autopilot, there are hidden gaps that will give you problems in the future. For example:

Misclassified transactions

A misclassification is easy to overlook, especially when you have a lot of transactions. One wrong entry may not seem like a big deal, but it has a domino effect on your books. For example, misclassification:

• Distorts financial reports: Profit and Loss statements become unreliable and can artificially inflate your gross revenue. You might also find yourself with a capitalization error where a fixed asset isn’t classified properly.
• Compliance risks: Tax authorities pay close attention to expenditures, and with connected accounts, it’s easy for personal expenses to be classified as business ones.
• Uncategorized assets and expenses: A common occurrence in tools like QBO involves bank feeds with uncategorized income or expenses. Without an accountant hunting down these items, your books will be inaccurate.

You might also receive a loan deposit, which is classified as sales revenue, inaccurately portraying your business revenue.

Fix This Issue

Set strict bank rules in your software to automate categorization while also reducing the risk of human error. Have your accountant reconcile your accounts to make sure your software’s balance is what’s reflected in your actual bank statement.

Duplicate Entries

Sometimes, software will gather data from your bank feed, but someone else manually enters transactions improperly. Your bank feed is imported without a matching term, and then your balance will be higher or lower than it really is.

Often, this happens during account reconnection.

Fix This Issue

Monthly reconciliation is the best way to fix this problem. If the Ending Balance doesn’t match what your software displays, start looking for duplicate entries.

Missing Transactions

API connections are “fairly reliable,” but when it comes to your financials, fairly isn’t enough. A 24-hour gap of improper transaction imports often leads to:

• Underreporting expenses
• Missed customer payments

Fix This Issue

Correct this issue with your transactions by looking at the Last Updated timestamp on your bank import. Gaps in dates mean that there are data holes that must be rectified.

QuickBooks users can follow the official guide to spot missing transactions and correct them.

Over-reliance on Rules

Bank rules are powerful ways to categorize transactions. You can, and should, spend a lot of time adding in rules to make your books as accurate as possible. But even if you do everything right, there are problems with over-reliance.

Rules follow instructions without context.

For example, let’s assume you purchase a new MacBook and it’s categorized as an “Office Supply” because you purchased it on Amazon. Your MacBook is a Fixed Asset, so it’s classified improperly.

If you’re audited in the future, the auditor will quickly find these discrepancies.

Fix This Issue

Auto-categorize your transactions, but don’t “Auto-Confirm” them. You’ll need to confirm the categorization before they’re added to your ledger, which takes time, but it’s worth the effort to avoid a messy cleanup in the future. 

No Reconciliation 

Yes, you still need to reconcile your accounts. It sounds great to “set it and forget it,” but it’s a recipe for disaster. Small errors go unaccounted for when you skip reconciliation, and then your data and books become unreliable.

Fix This Issue

Keep a human in the loop who will review your books and ensure your data is reliable.

Small errors compound over time. While connected accounts do help you speed up your entries, accuracy comes from:

• Strict categorization
• Regular manual reviews
• Account reconciliation

Work with a professional to verify your books are actually accurate. We help our clients uncover these hidden issues, reconcile accounts and have peace of mind that they have a clear picture of their business’s health.Schedule a consultation to learn how we can help you keep your connected accounts accurate.