Digital accounting confusion

I admit that when it comes to bookkeeping, I often think to myself – well, where have we come to? I'm talking about the work of accountants and how the volume of documentation we process is not decreasing but, on the contrary, increasing. The number of invoices, transactions, and everything related to them is growing. There are more and more parameters and thresholds that you, as an accountant, have to monitor. And all of this is supposed to be included in the price of our services. But how can it be, when business has become 5 times more complex than before?

Let Me Give You a Concrete Example

A retail store – from a documentation perspective – has "produced" 25 daily sales receipts, 10 deposits, and 4 bank transfers for card payments. After the lockdown, they decided not to risk a complete revenue loss and simultaneously tried to capture the rising trend of online sales. Click, click, click – and an online store is set up, a few ads are posted, or an influencer is hired, and sales start rolling in. Everything is nice and fine... But with this comes the question for accounting: "What do we need to provide to you now?" And then they export screen images, extract CSV files from the system... "Is this okay?"... and oh, by the way – yesterday, a customer wanted a pro forma invoice "on the company," so we introduced that option too... The accountant's usual response is: "Yes, send us daily or monthly reports of your operations, and we'll also need invoices issued to tax entities... and make sure to indicate the payment methods as well"... Okay, no problem.

First Round of Documentation

This is how we get the first round of documentation. Of course – some things are missing. At the same time, the client has also opened a PayPal business account, and now they have (at least) 4 payment methods – card payments online, pro forma invoices, cash on delivery, and now PayPal... Just the other day, they also noticed that fresh FinTech solutions (FinTech stands for Financial Technology companies – often payment intermediaries) are popular now.

Principles of Careful Accounting

As dictated by the principles of careful accounting (you know, the Slovenian Accounting Standards, International Financial Reporting Standards...), all of these business events need to be taken seriously and handled with due diligence. Otherwise, you quickly encounter "digital accounting confusion" – let's call it DAC. So, what is DAC? It's a situation where you have a pile of sales, prepayments, returns, claims, and credits, scattered and settled using a multitude of payment methods. Here, the complexity of operations practically goes through the roof, and not even the most experienced accountant staring at the records for 10 hours straight can unravel this Gordian knot. DAC is also a huge thorn in the side of the head of the accounting service when trying to charge the client for these hours – and when, on the other hand, they experience an existential shock that so much more work can't possibly be – because their revenues haven't increased by much. The entrepreneur hasn't saved enough for a new X6; they're still driving the 2017 imported one from Germany – how could there be such a jump in accounting costs then.

Options for Accountants

In this situation, accountants have 2 smart options (and a few not-so-smart ones).

The first (smart) option is to significantly simplify the processing of the entire business. Book cumulatively, close open items collectively, don't dwell on specifics (returns, credits, errors) too much, and consciously (with the consent of the entrepreneur) take the risk that things might not be "perfect," that deviations can occur on five different ends, and that something might be overlooked (a credit note, maybe an invoice – a revenue). But – what can you do. Is this smart? Well, it's perhaps more life-oriented compared to the next option.

The next option is an unrealistic and not-so-smart option... for the accountant to post-process the documentation, review all the records, sales, credits, transactions post-factum, import all CSVs into Excel – and this could be like 3 files for each payment method – cross-check for deviations and duplications. Maybe they'll break through and sort things out. By next month. I highly doubt it... definitely not for a reasonable price.

So, there's one more option left – where, if I again lean on the International Financial Reporting Standards (IFRS), the point is to proactively approach this carefully, systematically, and transparently. The only way to do this in modern accounting is to also use technology. Fortunately, there are tools that make these things easier for us – of course, assuming we also thoroughly rethink the entrepreneur's business model and design its reflection in accounting accordingly. As expected, this means a larger volume of entries and record-keeping – but due to automation, this doesn't necessarily mean more work. It means less work, more efficiency, and a final result of greater transparency and consistency. More concretely, this means – first and foremost – trying to connect business-accounting programs to some meaningful extent – either by sharing programs or through some other form of integration. The method depends on factors on both the entrepreneur's and the accountant's side. Second, accepting as an accounting approach that payment methods are treated individually, that is, as transactions in the bank account. And third, to the fullest extent possible, connecting payment transaction data with our accounting software. At least in the form of importing transaction files (as we do with traditional bank account statements).

The Key to Efficiency Lies in 2 Steps

Steps 2 and 3 are crucial – they involve establishing accurate records, closing items, facilitating reconciliation of "problematic" matters, and eliminating errors, as well as accurately recognizing all accounting categories (especially revenues, but also expenses, receivables, and liabilities).

So, accountants – get ready – online business is here to stay and grow. Similarly, entrepreneurial innovation continuously drives us to acquaint ourselves with new technologies, solutions, and business models. The task of accountants is to prepare for this and to handle it correctly from an accounting perspective. No one wants to be stuck in the muddy DAC.