AI Bookkeeping Can Categorise Your Transactions, But Can You Trust It?
AI bookkeeping can categorise your transactions, but can you trust it? Answered below.
AI is increasingly becoming integral to accounting software.
Transactions can be automatically imported, receipts can be digitised, and programs can recommend appropriate categories for various expenses.
It can significantly reduce time spent on bookkeeping tasks. However, an essential question arises for all business owners utilising AI bookkeeping solutions.
Can they be relied upon to ensure accuracy? The short answer is no.
While AI and automation can streamline bookkeeping processes, it’s still necessary to verify your records.
How is AI being used in bookkeeping?
Modern bookkeeping software can automate many of the repetitive tasks that previously required manual data entry.
Depending on the software you use, it may:
- Read information from receipts and invoices
- Suggest transaction categories
- Match payments against invoices
- Import transactions through bank feeds
- Identify potential duplicate transactions
- Learn from previous bookkeeping choices
These tools can make everyday bookkeeping much faster. However, they rely on the information and patterns available to them.
They do not always understand why a transaction occurred.
AI can categorise a transaction incorrectly
Imagine your business spends £500 at an electronics retailer.
Software can identify the retailer, amount, and transaction history, but it may not always know what was purchased.
Was it a laptop, office supplies, customer equipment, or a personal purchase made by mistake using the business card? These differences are important.
Choosing the wrong category can impact your bookkeeping reports and how the transaction is processed later.
Relying blindly on software suggestions can cause errors to go unnoticed for months.
Unusual transactions can cause problems
Automation is most effective when transactions follow known patterns.
Routine actions like your monthly software subscription, regular rent payments, or recurring supplier invoices are usually simple to handle.
However, unusual transactions need more context. For example, you might make a large, one-time purchase, receive an unexpected refund, combine two invoices into one payment, or transfer funds between business accounts.
While software can suggest actions based on past activity, these suggestions are not always accurate.
A bookkeeper can review such transactions in the context of your business and investigate anything that seems out of place.
What about duplicate transactions?
Automation can help detect duplicate transactions, but it can also create them.
For instance, a transaction might be imported into your bookkeeping software via a bank feed while the same purchase was manually entered from an invoice.
Without effective matching, this could result in recording the same expense twice, leading to reports that inaccurately reflect double costs.
Regular bank reconciliation is one way a bookkeeper can spot these discrepancies.
AI does not know your business like you do
One of AI bookkeeping’s major limitations is its inability to grasp context.
Two businesses might each pay £1,000 to the same supplier, but their reasons could vary widely.
Understanding the context is essential. A professional bookkeeper takes the time to understand how your business functions, including your regular purchases, payment methods, and what irregular activity might look like.
While technology can simply process a transaction, a bookkeeper can ask questions and interpret its significance.
Does AI mean you no longer need a bookkeeper?
AI is transforming the bookkeeper’s role, but the need for professional bookkeeping remains.
Automation can actually increase the importance of human review.
Instead of spending time on manual data entry, a bookkeeper can focus on reviewing records, reconciling accounts, resolving discrepancies, and ensuring the books accurately reflect business activities.
AI can assist in this process, but it should not be the sole decision-maker.
Why accuracy matters even more with Making Tax Digital
Accurate bookkeeping remains crucial, but with Making Tax Digital (MTD), more sole traders and landlords now keep digital records and report to HMRC year-round.
An unnoticed automation error could stay in your records when you submit your quarterly MTD update.
Using software compatible with MTD is essential, and ensuring the information in that software is correct is equally important. Digital tools alone do not guarantee accuracy.
Should you use AI for your bookkeeping?
There’s no need to shy away from useful automation just because it might make errors. Think of AI bookkeeping tools as tools to assist you.
Use automation to cut down on repetitive tasks, but make sure you reconcile your bank accounts regularly, investigate unusual transactions, review automated categories, check for duplicate entries, and verify that your records accurately reflect actual business events.
The aim is to blend helpful technology with appropriate human oversight for optimal results.
How Rosemary Bookkeeping can help
You might already use bookkeeping software that automates parts of your financial records, which is beneficial.
However, someone still needs to verify that the information is correct. Your local Rosemary Bookkeeper can maintain your records, reconcile accounts, check transaction categorisation, spot discrepancies, and help keep your digital bookkeeping accurate.
As technology advances, the human role evolves as well. AI bookkeeping can propose transaction categories, but your bookkeeper ensures they are correct.
