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The MTD tech approach: Spreadsheets

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Will Excel excel when it comes to MTD ITSA, or will spreadsheets prove to be more trouble than they’re worth for hard-pressed practitioners? In the latest installment of his MTD tech series, Richard Sergeant weighs up the pros and cons of the spreadsheet approach.

26th Oct 2022
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There’s nothing like an Excel debate to get the blood pumping, but add it to MTD ITSA and it’s a recipe for some serious debate

Having covered most alternatives to using a major bookkeeping solution as part of the MTD technology series, the one missing part was of course the humble spreadsheet. Given that they are sanctioned by HMRC as a legitimate way to keep digital records, it would seem a viable alternative to paying for additional software licences. 

Given that most software vendors would be unlikely to suggest the mass use of spreadsheets, with a few exceptions, it is left to accountants themselves to weigh up this choice. 

To help research this piece, I turned to LinkedIn and Any Answers, which both provided useful insights.

Best use case is for the simplest of clients

For the very smallest of clients, there seems to be some consensus that spreadsheets will be an appropriate route, as AccountingWEB member MCV71 makes clear on the Any Answers thread: “My client base is micro businesses so spreadsheets are better than the cloud products”.

Of course, deciding what is a simple client can be highly subjective, but a lack of complexity seems to be key, as laid out by Kaylee100: “I would anticipate that especially for landlords only and very small businesses [spreadsheets] will be the best solution”. 

Bypassing those with considerations like shared ownership of a property, or even multiple trades, would allow the focus to be on those where there are likely to be few transactions overall.

Are spreadsheets more trouble than they’re worth?

For balance, there is always the opposite view, typified by Tomazaan: “It seems to me that using spreadsheets is creating extra work. I am insisting that my clients use a cloud-based package with bank feeds”.

From the experiences shared of MTD for VAT, we know that taking this approach was not unheard of, and centred largely on the client service angle (the ‘broader benefits’ of working in a more digital environment) and establishing the internal efficiencies of the practice to cope with increased work.

While it's much harder to make the case for the client service angle with ITSA, the latter is still very much a priority for some.

Sam Mitcham, the founder of SJCM Accountancy, is a good example: “If the software providers’ price is right then I almost guarantee it will be worth me ‘suffering’ the cost myself to avoid my average client from breaking an Excel spreadsheet at every opportunity”.

Given the huge range of attitudes and abilities of business owners when it comes to their financial administration, there must be a concern that there will be a lot of fixing to do, all of which will rack up time somewhere down the line for accountants to either charge for or absorb. This may be true for whatever system is used, but spreadsheets are fundamentally more brittle and more open to breaking given their open, flexible nature.

Changing and updating

Another concern raised is around changing and updating data. The rules here are still not clear, but given the basis is that source data needs to be amended this could create issues as North East Accountant points out: “Down the line penalties will start and when HMRC asks you to reconcile the initial submitted quarterly update (QU) with the amended QU, you are dead in the water if you've used a spreadsheet. IMHO a full audit trail is absolutely essential, so no we won't be using a spreadsheet”.

While it’s worth reading the Any Answers thread for the full debate on this, the fact remains that changing and updating data, and providing a sufficient audit trail that would satisfy all parties (including HMRC) could be problematic.

Without absolute clarity, this could remain an area of individual judgment, leading to assumptions of what is and what is not acceptable.

Receipts

Developing the point above further, how will the data be verified? Eriona Bajrakurtaj of Majors Accounts takes the belt and braces approach with her clients and insists “the client has supporting evidence for everything they put through. [Subsequently] Excel will not really allow us to inspect the documents.” 

Will we be operating at a level of trust with clients who choose to keep their own records? To what extent will we verify the ‘data’ against the paper trail, and just as importantly, how will these be stored and held?

This area quickly steps into the kind of service a firm wishes to provide, from simple checking and year end process to a fully outsourced solution. However, focussing on the software side, spreadsheets do not naturally provide a storage solution for those wanting to keep a robust audit trail, so a more manual (dare I say shoe box) approach might be needed.

Bank feeds

Of course, that could be less of an issue if it could be reconciled easily with a bank statement. For Mitcham, this reinforces the value of moving to a non-spreadsheet approach, “the beauty that lies within a bank feed alone is worth the cost of the software”.

For AccountingWEB member JD, an ideal world would be “a spreadsheet with a bank feed add-in”. While it might be as expensive to have the bank feed plugin as it would for some low-cost software, there may be solutions that do just this coming onto the market. 

Tunbridge Wells-based developer 123Sheets tantalisingly claims: “We should have that sorted over the next 12 months as an Excel Add-in,” which sounds like one for JD to keep an eye on in the future.

Bridging the gap

We should also not forget that spreadsheets will need bridging software too. This is unlikely to be on the radar for most small businesses (as is MTD ITSA in general at the moment) who think they can do it themselves on an old version of Excel. 

I’m also not aware of any plans for HMRC to offer such a facility. Accountants could find themselves facing the choice of how to, or whether they even want to, deal with those that think they could take a DIY approach but have ultimately found themselves in hot water. Clearing up a lot of spreadsheets that have been shared, copied and ‘enhanced’ far and wide could be an unpleasant prospect.

Always appropriate

To be clear, the use of spreadsheets will absolutely be the right solution for some. Where it is the most appropriate and proportionate approach, and where it can still be held to sufficient scrutiny, remains subjective.

In many ways, this might just have to be in the hands of accountants. But that, of course, is very much for you to decide.

Get the latest MTD ITSA news and test the latest solutions at AccountingWEB Live Expo on 30 November to 1 December at Coventry Building Society Arena. 

Replies (27)

Comments for this post are now closed.

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By Paul Crowley
26th Oct 2022 12:10

123 sheets are on HMRC's list for MTD ITSA

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By Paul Crowley
26th Oct 2022 12:41

Easy have decided to wait until HMRC knows what it is doing

There will be a cascade of spreadsheet offerings come the day
Just like the cascade of VAT offerings, despite the claims that spreadsheets just could not cope from the vested parties last time around

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Replying to Paul Crowley:
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By Beef curtains
26th Oct 2022 13:27

Could likely be a long wait

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Replying to Paul Crowley:
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By Beef curtains
26th Oct 2022 13:28

Could likely be a long wait

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By Hugo Fair
26th Oct 2022 13:40

Interesting ... but neither of the identified 'issues' are actually a major factor:
* it's just as easy to 'break' package software as a spreadsheet (but generally more catastrophic and much harder to rectify);
* version control of spreadsheets is as easy to manage as attempting to unwind transactions through a (typically rather poor) audit trail facility.

The key (and arguably only) issue is what process (including software but also human procedures) will generate the best balance for a particular client between effort & accuracy.
And this in turn will be dependent mostly on the skills and desires of the clients, who at the small end have (rightly or wrongly) bought into the concept that they've 'bought' a solution when they appoint their accountant.

Of course if you see your clients as mere numbers on the production line, then a package software commitment makes sense (for the agent) by minimising the skills required to handle volumes ... but there tends to be a trade-off in quality of service and knowledge of front-line staff.
Remind you of anyone - HMRC?

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By jonharris999
26th Oct 2022 14:23

I think it is way too soon for you to make this definite an assertion, Richard:

"To be clear, the use of spreadsheets will absolutely be the right solution for some"

To reiterate something I've said in other threads:

* A large % of my self-book-keeping VAT-regd clients were resistant to the idea of cloud-based software before MTD for VAT
* Some tried spreadsheets-and-bridging
* Not a single one of those was satisfied by that experience, memorably described by one as 'trying to do a jigsaw by throwing all the pieces up in the air and catching them in the right place'
* 100% are now on cloud software, banking the time-saving and wishing they'd done it before

I really don't care who tells me I've swallowed the SIFT textbook. The best service we can do our clients is to coral them in with efficiency, effectiveness and helpfulness. It's true that the financial cost to them will go up, but the saving in time and accuracy will be worth it, in my view in *all* cases. With so much choice in the market, I don't see any clients grumbling that an unfair cartel is being created here.

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Replying to jonharris999:
By ireallyshouldknowthisbut
26th Oct 2022 15:07

I would suggest the suitability of software is directly correlated to the number of transactions.

So VAT registered businesses in the main would benefit, as do those with large transactions volumes, or complex records to record.

Those adding up rent once a month, not so much.

Your ex-clients who didn't like your approach John, have of course already left. Lots of them came to us, so I have heaps of them as we love low transactional volume work as its highly profitable on fixed fee.

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Replying to ireallyshouldknowthisbut:
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By jonharris999
26th Oct 2022 16:27

...and these number 0.

I didn't find the pain of spreadsheets-and-bridging, when we tried it for VAT, was really in the volume of transactions. It was in trying to make the bloody thing file (while also not being beset by the providers' stupid adverts). Which is the same for 1 trans as for 1000.

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Replying to jonharris999:
By ireallyshouldknowthisbut
26th Oct 2022 17:07

jonharris999 wrote:

...and these number 0.

I didn't find the pain of spreadsheets-and-bridging, when we tried it for VAT, was really in the volume of transactions. It was in trying to make the bloody thing file (while also not being beset by the providers' stupid adverts). Which is the same for 1 trans as for 1000.

What adverts? The ones we use are really slick. Once its set up its doddle to file. I mainly use VT myself for this.

We have quite a number of VAT clients who stuck on excel as they like it and are good at using it and see no need to change.

MTDfIT is completely different of course as fundamentally the data is not used for anything, so any old junk will do.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
27th Oct 2022 13:06

Same here
Quite a few still using spreadsheets
One size does not fit all

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By adjadj
26th Oct 2022 23:12

I am baffled how some accountants appear to be able to produce a set of property income and expenses broken down into the categories used on the property form by using the bank feed as their primary source of information. I speak as someone who is part-time landlord with more than a decade of experience of doing my own SA105 return. These are the typical issues I would face if using the bank feed as my primary source of information
• The description line in the bank feed can sometimes be very obscure
• The revenue feed is always net of any deductions made by the agent for expenses which they are authorised to manage
• At times of refurbishment for practical reasons outgoing payments will be from the bank account, credit card and cash expenses
• A single purchase of multiple items from say Screwfix may include some personal items which cannot be claimed as expenses
• Payment for travel by car is a computed expense
• For some people the bank account may cover more than a single taxable business; e.g. a property business and a small sole trader business

It would be interesting to hear from accountants who advocate the bank feed method as to how they get round these factors on a day-to-day basis.

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Replying to adjadj:
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By jonharris999
27th Oct 2022 06:34

Either the client learns to use the bank-feed package themselves - a small investment of time and trouble for a bigger return of speed and accuracy in the long run; or if we are book-keeping, we compile a monthly list of questions by email for the items that we are unsure about. For all our sole traders or one-person PSCs this takes minutes per month.

I agree that Sage and Xero will seem like overkill for very small landlords, but there are already other landlord-specialist packages out there and there will be more.

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Replying to adjadj:
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By Ajtms
27th Oct 2022 09:40

I totally agree. Spreadsheets are the only practical solution for landlords. Spreadsheets save time and money. It is just a case of getting the template design right so that it does an accruals basis as well as a cash basis.

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Replying to adjadj:
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By sallyrichardson
27th Oct 2022 10:47

Hi Adjadj

The description line in the bank feed can sometimes be very obscure

We keep a list of regular purchases for each client and what is shows on the bank feed. We also keep the bookkeeping up to date / encourage them to do so, so that transactions are fresh in their mind.

• The revenue feed is always net of any deductions made by the agent for expenses which they are authorised to manage

All cloud systems allow you to post income and an expense to the net amount on the bank

• At times of refurbishment for practical reasons outgoing payments will be from the bank account, credit card and cash expenses

We mostly use FreeAgent which allows you to add Out of Pocket expenses that the client has paid for personally. It even keeps a tally of how much money they are owed for these expenses.

• A single purchase of multiple items from say Screwfix may include some personal items which cannot be claimed as expenses

All cloud systems will allow you to split a transaction and move any personal amounts to Drawings / DLA

• Payment for travel by car is a computed expense

FreeAgent includes a mileage log and adds calculated mileage cost as an out of pocket expense. Other systems have extra modules for this at an extra cost.

• For some people the bank account may cover more than a single taxable business; e.g. a property business and a small sole trader business

We always encourage clients to set up a separate account. If they don't have a separate account anything relating to another business can be moved to Drawings / Cap Introduced

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Replying to sallyrichardson:
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By adjadj
27th Oct 2022 11:40

Thank you for taking the time to provide a detailed reply
I can see that Freeagent give the flexibility to create the transactions needed but it still requires information that is Not in the bank feed to do it. The client needs to inform their agent of this ancillary information in one form or another.

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Replying to adjadj:
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By sallyrichardson
27th Oct 2022 14:11

Hi Adjadj,

We have approx 150 clients on this software - from painters and plumbers to nursery schools and breweries. With our support approx 75% of them do their own bookkeeping using it and none of the things you have mentioned have been an issue for them - no minds blown! We need to make small adjustments at year end but nothing major. For the other 25% who can't deal with tech, we do the bookkeeping for them and would say the time it takes is over 50% less than if we used a spreadsheet for them. Nearly all of them much prefer the software as well - they can upload photos of receipts on their phone, and match transactions on their phones during their lunch breaks. And they can see a predicted tax bill, who owes them money, who they owe money to, ever cash flow predictions. It's a win win situation from our experience.

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Replying to sallyrichardson:
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By adam.arca
27th Oct 2022 18:20

sallyrichardson wrote:

Hi Adjadj,

We have approx 150 clients on this software - from painters and plumbers to nursery schools and breweries. With our support approx 75% of them do their own bookkeeping using it and none of the things you have mentioned have been an issue for them - no minds blown! We need to make small adjustments at year end but nothing major. For the other 25% who can't deal with tech, we do the bookkeeping for them and would say the time it takes is over 50% less than if we used a spreadsheet for them. Nearly all of them much prefer the software as well - they can upload photos of receipts on their phone, and match transactions on their phones during their lunch breaks. And they can see a predicted tax bill, who owes them money, who they owe money to, ever cash flow predictions. It's a win win situation from our experience.

Hi, Sally.

If I may:

Obviously, mine was a sweeping generalisation but 75%? That’s really impressive. I can’t even imagine getting to 50% because we’ll all be dealing here with the hard core of cases who are too small / too lazy / too scared of computers / too poor already at bookkeeping without making it more difficult / too bloody minded / no business case (or any combination of those). So are we talking like-for-like here? Is that 75% of your non-computerised clients you’ve converted since MTD raised its ugly head?

Also, what do you mean by “our support”? What is the cost implication for your clients in that?

I can clearly see that dedicated software when doing the bookkeeping for the remaining 25% makes a lot more sense than using a spreadsheet (or, even worse in this scenario, a client’s spreadsheet) but that’s still got to be a lot more expensive for clients than the old-fashioned way of pulling clients’ books together in one go at the year end, right?

I’m impressed that, as a practice, you’ve converted your client base to 100% computerisation but, personally speaking, I’m not in the business of making clients do things they don’t want to until that something is the law and not a second sooner.

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Replying to adam.arca:
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By sallyrichardson
27th Oct 2022 22:03

Hello,

To clarify, we have approx 150 of our clients on software and about 80 that are still shoebox clients on spreadsheets. Of the 150 around 50 are VAT registered so have been using the software at least since MTD for VAT.

We have never forced any client to use software. We have given them a demo and explained all of the positive things software can do for their business. We have then explained when MTD for ITSA is coming in and what it will mean (as far as we know). We have suggested that if they get the right bank account they can use software like FreeAgent for free for life. We have then supported them by offering access to lots of our training videos and one to one training to get them up and running. We do not charge them for this support, as we know that once they are on the software they will be much easier to deal with for us.

Not one of the clients that have started using the software have asked to stop using it. Not one.

It is not all size fits all - a few are on Xero and other systems - but most are on FreeAgent as it is in our opinion the simplest to pick up. They raise their own invoices and explain the bank transactions attaching receipts - a lot of them don't even consider that they are doing "proper bookkeeping" because it is that easy.

For those that are not VAT registered, some tend to raise their own invoices through the year and then turn up with the same box of receipts, but using the software cleverly we can explain 40-50 bank transactions at a go, and match everything off and complete their SA in less than half the time it used to take on a spreadsheet.

This may not yet be a legal requirement - but it is coming, and we will be continuing to meet with the shoebox clients over the MTD for ITSA threshold from January onwards to make sure as many as wish to be are on software before 2024.

But what in my opinion you are missing is - even if it is not yet the law - the huge benefits that these small trading clients can get from good software used correctly. They can chase late payers with the touch of a button, they can see month on month P&Ls, they can drill down on their expenses to see where their money is being spent and therefore where they can cut costs, and they can see every day how much money it is expected they will owe the HMRC for VAT, for PAYE, for CT or for SA. For a large amount of our clients, they have told us that that lets them sleep at night.

Obviously everyone has their own opinions and runs their businesses the way they wish to, and if we were all the same it would be a very boring forum. Good luck to you with your approach :-) If you get anyone who likes software send them my way lol :-)

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Replying to sallyrichardson:
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By adam.arca
27th Oct 2022 13:06

Responding to Sally with a different take on usability of cloud software for most clients:

>>>We keep a list of regular purchases for each client and what is shows on the bank feed

That will blow the mind of the average disorganised client

>>>All cloud systems allow you to post income and an expense to the net amount on the bank

Posting both a receipt and payment(s) from one bank transaction will definitely blow the mind of the average client

>>>We mostly use FreeAgent which allows you to add Out of Pocket expenses that the client has paid for personally. It even keeps a tally of how much money they are owed for these expenses.

A useful feature but tracking transactions from multiple sources will blow the mind of the average client: you just know that most of this stuff is going to end up in the main bank a/c regardless of where it was really paid from

>>>All cloud systems will allow you to split a transaction and move any personal amounts to Drawings / DLA

Splitting a transaction over multiple cost allocations will definitely blow the mind of the average client: you just know that isn't going to happen

>>>FreeAgent includes a mileage log and adds calculated mileage cost as an out of pocket expense

A useful feature but the average client expects that to be entered by their accountant at the year end. I have plenty of clients who wouldn't trust themselves to multiple x miles by 45p or be aware of the 10k limit and how to deal with it (if this were a business and not property)

>>>We always encourage clients to set up a separate account. If they don't have a separate account anything relating to another business can be moved to Drawings / Cap Introduced

Again, the idea of splitting stuff out is going to blow the mind of the average client

I'm definitely not going to be doing any handholding when it comes to client bookkeeping (unless they're willing to pay which, in 99% of cases, they understandably won't be) and, even though I think I've got an above average set of clients, I can only see all this going one way.

There's a role for software for a very small subset of clients who ought to have been on it already but the vast, vast majority are going to be better off using spreadsheet until we've all got a much better handle on how this is panning out in practice.

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Michael Bennett, Owner of Michael B Bennett Ltd
By Michael Bennett
27th Oct 2022 09:24

Given that the EOP is not reconciled back to quarterly returns, and that there are no penalties for incorrect quarterly submissions, why would anyone bother with a revision to an earlier period. It seems to me that the main reason a lot of practices are going down the "cloud only client" route has nothing to do with anything except maximizing profit, given the immoral way that the large providers are selling their software. Unfortunately the current market ethos seems to be based around profit maximization rather than client service

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Replying to Michael B Bennett:
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By Ajtms
27th Oct 2022 09:45

I agree. For me customer service is paramount and therefore making things easy for them by guiding them through a spreadsheet template so that they, the client, can complete it is the only way to go

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Replying to Michael B Bennett:
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By jonharris999
27th Oct 2022 10:21

I feel that's most unfair. MTD for VAT has been good for clients on the whole, and this will be too.

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Replying to jonharris999:
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By Sue Murby
27th Oct 2022 11:07

I have only a few clients who are VAT registered and I cannot see, for the life of me, how MTD for VAT has been good for them.

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Replying to Sue Murby:
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By Paul Crowley
27th Oct 2022 13:13

More significant errors on VAT from clients using software than from those same clients that previously used spreadsheets
One now owes £37K of VAT input duplicated by using Hubdocs
Another just cannot get doing journals right

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Replying to Paul Crowley:
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By jonharris999
27th Oct 2022 15:36

Thanks heavens for Paul. At least someone on this forum engages in reasoned debate.

I simply hold that in the long run, matters of fact (not matters of judgement) are better handled by automated processes. I accept that this is i) requiring of unwelcome effort and change at the start, and ii) easier, bluntly, for younger business owners than older ones.

I also entirely accept that I am in the minority here. But I wholly resent the implications from some that I am motivated by anything other than a belief about what is best for my customers.

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By Ralphgab
28th Oct 2022 12:22

For AccountingWEB member JD, an ideal world would be “a spreadsheet with a bank feed add-in”.

Surely downloading bank statements as CSV, achieves that?

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
28th Oct 2022 12:48

Unfortunately we have had to close comments on this thread due to reports from members about the direction the discussion has gone. Why not chill out and have a pleasant Friday lunch while we tidy things up.

Please remember that this is a professional forum. Do not say anything here that you wouldn't say in your normal work setting.

As a polite reminder, our site terms and conditions forbid any defamatory comments (eg belittling someone's intelligence or professional expertise), obscene, offensive or discriminatory comments, or anything likely to upset, embarrass, alarm or annoy any other person.

So have a bit of perspective - this is an article about spreadsheets, after all - and try to ask yourself before you start typing whether the comment you're about to make makes any constructive or useful addition to the debate.

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