Hi, When we make cheque payment from one bank account to another, then there is a clearance time delay of couple of days. Here in this software the same date is carried forward. A way to overcome this is to have a dummy clearing account, but this is cumbersome. Also one bank will have one description in its ledger while the other will have different way to describe and the software allows for only one description. I think if you address this it may make more sense for all using this software, otherwise I use dummy bank account to transfer from and to. Any comments please ?
In accrual accounting, transactions are properly entered on the date they become irrevocable. Thus, the account from which the transfer is made is properly credited when the check is written. That check is a liability of the company until it clears, even if that never actually happens. The receiving account has a right to the money from the same moment, even though the clearing procedure has not completed. So Manager’s approach is correct and properly reflects the position of the company at all times. (Remember, your books are kept from the company’s perspective, not the bank’s.)
The only difficulty presented is when reconciling bank accounts during that float period. But you have the same situation when writing a check to a supplier. I see no reason to create a dummy clearing account. Accountants and auditors are completely familiar with this situation.
@lubos has also said he is working to improve the bank accounts module and the reconciliation process.
@Tut, Thanks for your reminder to say “Remember, your books are kept from the company’s perspective, not the bank’s” and you are right on the ball on this, but still when bank reconciliation is done and when descriptions and dates (Bank entry date v/s company bank book entry date occurs then there remains a gap). But again you have clarified “@lubos is working to improve bank account module and reconciliation process”, so I await that. I appreciate your quick and focussed reply.
One other thought may help alleviate your concerns. Reconciliation is just a verification process. It helps us find errors before too much time goes by. But it is not an integral part of the actual “accounting” process, in the sense of keeping the records of the company. In that way, reconcilation is like auditing random purchase orders, counting petty cash, or checking inventory. Those can all be important actions, and may sometimes be performed by the same people keeping the books, so they may seem like part of accounting. But they are frequently done by independent persons, too, as a way of discovering mistakes or fraud. Reconciliation is also not done when transactions occur, as accounting entries are, but later, after receiving a bank statement of some kind. It is normally a pleasant surprise when our records and bank records reconcile perfectly, because there usually are some transactions still in float.