AI and automation are changing bookkeeping quickly.

Bank feeds can bring transactions into Xero automatically. Software can extract information from invoices and receipts. Rules can suggest where transactions should be coded. Systems can match payments, identify patterns and increasingly use AI to help analyse financial information.

That's a good thing.

Used properly, technology can remove a huge amount of repetitive finance work and make bookkeeping faster and more efficient.

But there's an important distinction:

Automating bookkeeping isn't the same as guaranteeing that the bookkeeping is right.

What Do We Mean by AI Bookkeeping?

“AI bookkeeping” can make it sound as though artificial intelligence is now doing everything a bookkeeper used to do.

In reality, it's usually a combination of different technologies.

These can include:

• Bank feeds bringing transactions directly into accounting software

• Invoice and receipt capture

• Automatic data extraction

• Bank rules and suggested transaction coding

• Matching payments against invoices

• Identifying duplicate or unusual transactions

• Automated reconciliation tools

• AI helping to categorise or analyse financial information

Some of these technologies have existed for years. Others are becoming significantly more sophisticated.

Together, they can dramatically reduce the amount of information that needs to be entered manually.

What Technology Does Really Well

Bookkeeping traditionally involved a lot of repetitive processing.

Someone had to enter invoices, copy information from receipts, import bank transactions and manually match payments.

Modern accounting technology can do much of this faster than a person.

That can mean:

• Less manual data entry

• Faster processing

• Fewer simple input errors

• More up-to-date records

• Lower administration time

• More time available for reviewing and understanding the accounts

At MBS, we're very much in favour of using technology where it makes the finance function better.

The question isn't whether accountants and bookkeepers should use AI and automation.

They should.

The question is where technology stops and accounting judgement starts.

Automation Can Process a Transaction. It Can't Guarantee the Accounting Treatment Is Right.

Imagine your accounting software sees a payment to an insurance company.

It may be perfectly capable of identifying the supplier and suggesting that the payment should be treated as insurance.

But that doesn't necessarily tell you everything you need to know.

Does the payment relate entirely to this financial year?

Should some of it be prepaid into the next period?

Does it include something that needs to be treated differently?

Has VAT been dealt with correctly?

The software can make a suggestion based on the information available to it.

Whether that suggestion is correct can require context.

And the same issue applies throughout the accounts.

A transaction can be processed efficiently and still be accounted for incorrectly.

Why Does That Matter?

Because almost everything else you do with your financial information depends on the bookkeeping underneath it.

Your Xero reports might show:

• Revenue

• Gross profit

• Overheads

• Profit

• Debtors

• Creditors

• Cash

You can then give those reports to an AI tool and ask it to analyse the business.

It may produce an impressive explanation of what the numbers appear to show.

But if the bookkeeping behind those reports is incomplete or inaccurate, the analysis is based on unreliable information.

Better analysis of the wrong numbers doesn't make the numbers right.

That's why reliable financial reporting starts with reliable bookkeeping.

Where Human Review Still Matters

Good bookkeeping isn't simply about checking every transaction manually.

Technology should deal with as much routine processing as it reasonably can.

Experienced people can then concentrate on the areas where review and judgement add value.

That might include:

• Checking bank and balance-sheet reconciliations

• Investigating unusual or unexpected balances

• Reviewing VAT treatment

• Looking at loans and finance agreements

• Checking payroll-related transactions

• Identifying accruals and prepayments

• Reviewing director's loan accounts

• Understanding unusual transactions

• Checking that income and costs have been treated consistently

• Asking questions when something doesn't make sense

This is also why the balance sheet matters.

A profit and loss report can look perfectly reasonable while errors are accumulating elsewhere in the accounts.

Good bookkeeping involves checking that the financial records work as a whole.

Can't Xero Just Do the Bookkeeping?

Xero is an excellent accounting platform, but Xero itself doesn't make a set of accounts accurate.

It provides the system, automation and reporting tools.

What comes out still depends on what has gone in and how that information has been treated.

The same applies to AI.

AI can make it easier to process, interrogate and understand financial information.

But sophisticated technology doesn't remove the need to establish whether the underlying accounting information is reliable.

In some ways, it makes that more important.

If business owners are going to use AI to analyse their accounts and help inform decisions, they need confidence in the information they're giving it.

So Will AI Replace Bookkeepers?

It will continue to change what bookkeepers spend their time doing.

And that's positive.

There is little benefit in paying an experienced person to manually enter information that technology can capture accurately in seconds.

The value increasingly comes from setting systems up properly, dealing with exceptions, reviewing the work, understanding accounting treatment and making sure the records can actually be relied upon.

The role moves away from entering every transaction and towards making sure the financial information works.

Technology and People Aren't Opposites

Sometimes the conversation around AI is framed as a choice.

Either you use technology and automation, or you pay accountants and bookkeepers to do things manually.

We don't think that's the right way to look at it.

A modern finance function should use good technology.

Xero, document capture, bank feeds, automation and AI can all make financial processes faster and more efficient.

But they work best alongside experienced people who understand what the information means and know when something doesn't look right.

At MBS Accountants, that's the combination we're interested in:

Modern technology to make finance more efficient. Experienced people to help make sure the numbers are reliable.

The Real Question Isn't Whether Your Bookkeeping Uses AI

AI will increasingly become a normal part of accounting and bookkeeping software.

In a few years, talking about “AI bookkeeping” may sound as unnecessary as talking about “cloud bookkeeping” does today.

The more useful questions are:

• Are your records up to date?

• Are they accurate?

• Are important balances being reconciled?

• Are unusual transactions being reviewed?

• Do you understand how your numbers have been produced?

• Can your accountant rely on the bookkeeping?

• And, ultimately, can you trust the financial information you're using?

Technology can help enormously with all of those things.

But technology is a tool.

Having more powerful tools doesn't remove the need to know whether the result is right.