When bookkeeping, which transaction date should I use from my bank statement?

Question

When reconciling my bookkeeping with my bank statement, should I use the date the transaction occurred or the date the bank processed the transaction?

Also, which date should I use when transferring money from one bank account to another? The problem being that the two banks processed the transaction on different days.

For example, if I withdraw €100 from my bank account on 30 September, I have the cash on that day (obviously), but my bank does not process the transaction until 2 October. How should I date the transaction in my own books?

As another example, if I transfer €100 from Bank A to Bank B, Bank A's statement dates the transaction on 20 September, but Bank B dates it as coming in on 22 September. How should I account for that €100 during those two days it's being transferred?

The bookkeeping software that I use doesn't seem to allow for this "transfer time" between accounts. When I enter a transfer from one account to another, they both have to have the same date.

How should I resolve this so I can accurately reconcile my accounts in my bookkeeping software? What's the "proper" way of doing this?

Answer 1

This seems almost overkill, but if you want to...

I suppose one thing you could do is create a separate money in transit account, similar to Account Payable and Account Receivable. In your bookkeeping, transfer the money from the source account to the holding account on the date that the source bank withdraws it, and then transfer the money to the destination account on the date that the target bank deposits it. This both makes it clear that there is money going between places, and ensures that the daily balance on each "physical" account is accurate.

For cash withdrawals and deposits, I'd just use the date when you make the withdrawal, since that is the day from which the money is available in the new location rather than the old one.

Note: I don't know if this is the "proper" way to do it in a random jurisdiction, but I doubt being this explicit can get you into trouble.

Answer 2

Personally, I use the earlier date in Quicken so that it looks like I lose money earlier. This isn't 100% accurate, but it keeps me from thinking my accounts have more money than they would otherwise have.

Answer 3

Your bank is maintaining different states for transactions, and changing the state depending on real-world events and the passage of time.

withdraw €100 from my bank account on 30 September […] my bank does not process the transaction until 2 October.

The bank probably have that transaction marked as “pending” on 30 September, and “cleared” on 2 October.

transfer €100 from Bank A to Bank B, Bank A's statement dates the transaction on 20 September, but Bank B dates it as coming in on 22 September.

Similarly, bank A will have the transaction marked as “pending” initially. Bank B won't have a corresponding transaction at all, until later; they'll have it “pending” too, until they confirm the transfer. Then (probably at different times from each other) the banks will each mark the corresponding transactions “cleared”.

The bookkeeping software that I use doesn't seem to allow for this "transfer time" between accounts. When I enter a transfer from one account to another, they both have to have the same date.

You may want to learn about different bases of accounting.

The simpler option is “cash-based” accounting. The simplification comes from assuming transactions take no time to transfer from one account to another, and are instantly available after that. Your book-keeping software probably books using this simpler basis for your personal finances.

The more complex “accrual-based” accounting tracks each individual transaction through multiple states – “pending”, “transfer”, “cleared”, etc. – with state changes at different times – time of trade, time of settlement, etc. – to more accurately reflect the real world agreements between parties, and different availability of the money to each party.

So if your book-keeping program uses “cash basis”, you'll need to pick which inaccuracy you want: book the transfer when you did it, or book the transfer when the money is available at the other end.

Answer 4

I would use the withdrawal date to record, as it represents you no longer have these funds in your account whether you have written a check and/or transferred money you should count the funds as no longer being in your account.