How AI Improves Accuracy and Reduces Errors in Bookkeeping

Bookkeepers and accountants have conventionally spent countless hours crunching numbers and ensuring the accuracy of every single detail in ledgers.

The price of not doing so is inaccurate financial data that could potentially lead to violation of accounting standards.

However, despite the most arduous efforts, bookkeeping errors happen.

Enter artificial intelligence (AI)!

AI-powered bookkeeping solutions are now stepping in to do the heavy lifting resulting in more organized and error-free bookkeeping.

Let’s deep dive and understand how the use of AI is leading to reduced errors and more accurate bookkeeping.

Why Traditional Bookkeeping Can’t Keep Up

Traditional bookkeeping relied on manual processes and spreadsheets. Copy pasting data from one platform to another is not the best way to maintain clean books. Here’s why the methods don't work anymore:

• Data explosion: The modern world has seen a significant boost in data, which includes financial data. Even for small businesses and startups, the amount of data generated and stored is much more than what it was a couple of decades ago. Humans would have to put in lot more hours to meticulously go through everything.
• Manual processes: Manual data-entry, reconciliation, and data categorization will always be more error-prone. Typos, mis categorization, and duplicate entries are more common than you might think. Humans make mistakes, not of their own volition, but it’s easy to miss things.

Today’s businesses need solutions that are faster, more accurate, and scalable. This is why conventional bookkeeping practices can’t help your business, especially in the long run.

How AI Improves Accuracy and Reduces Errors in Bookkeeping

So, how exactly is AI helping to overcome these challenges? Broadly speaking, AI automates repetitive bookkeeping tasks and uses machine learning for categorizing transactions. This ensures that bookkeeping platforms capture the most recent and correct data.

Let’s take a better look at how bookkeeping platforms use AI to reduce errors:

• Automated data entry: As we have already discussed, manual data entry has been the key reason for error-prone financial reports. While misses can be small, they can add up over time, leading to unreliable financial reporting. This is why, automating data entry is probably the biggest application of AI when it comes to bookkeeping.

  AI bookkeeping solutions can extract correct data from sources like invoices, bank statements, and receipts by leveraging optical character recognition (OCR) technology. The extracted data is then automatically updated on the system without any manual intervention. This results in minimized errors and saves bookkeepers a lot of time as they don't have to manually update financial information.

• Auto-categorization of transactions: Another reason for faulty financial data is mis categorization of transactions. If a bookkeeper accidently categorizes an expense as an income source, the financial reporting will be hugely impacted.

  AI on the other hand, uses pattern recognition and natural language processing (NLP) technologies to accurately assign categories to transactions. The user can further set automated rules for recurring transactions to make the process more efficient.

• ML-based anomaly detection: Financial data for any business can consist of several anomalies and inconsistencies. Going through all the data to uncover these anomalies is a challenging and time-consuming task.

  However, this process can be simplified largely with the help of AI and ML technologies. AI-powered bookkeeping platforms use ML algorithms to identify any unusual patterns in the financial data and automatically flag them for review. These solutions are further evolving in nature, meaning that they are constantly learning and get better at recognizing inconsistencies. This eventually helps businesses to detect errors before they become unmanageable.

• Automated transaction matching: One of the most important processes in bookkeeping and accounting is reconciliation of transactions. Before you get to the financial reporting bit, you must match all transactions in your ledger with external documents to verify their accuracy. While necessary, it is a time-consuming process.

  AI automates the transaction matching process and flags any errors (if any) to ensure all the recorded transactions are correct. Bookkeepers can spend more time on urgent tasks rather than focusing on manual reconciliation.

• Predictive analytics for improved data analysis: Understanding financial health is a must to be proactive and make better financial decisions. This cannot be achieved through manual processes as they rely on outdated data.

  AI leverages real-time data for financial forecasting. This allows businesses to have the ability to identify potential risks and adjust financial planning and strategies accordingly.

How Fincent Can Help

Fincent’s AI-powered bookkeeping services are specifically designed for small businesses and startups. We offer you a hybrid model that combines the power of human expertise and AI, so your books are always accurate and error-free. The following AI-powered features help us provide you with improved bookkeeping:

• Transaction categorization & reconciliation
• AI assistant for all your financial queries
• Automated anomaly detection & smart alerts
• Enhanced financial insights & reporting

All bookkeeping processes are overseen by our financial experts so there’s never a miss.

Conclusion

Financial reporting standards are specific and a failure to adhere to these standards can result in hefty penalties. Therefore, it’s important for businesses to have clean books and accurate financial reporting.

AI is the best tool at our disposal to ensure the same. It has the potential to automate manual tasks that are error-prone and identify anomalies before they occur and turn into big problems.