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Bank Reconciliation: Making finance easier for SMEs

Bank reconciliation adds an important element to a company’s cash-control policies by verifying the company’s cash flows with an external source of records. International best practice is for an SME accounting department is to designate a trustworthy person who is not regularly involved in handling cash receipts and disbursements to reconcile the company’s bank statements each month. This cash-control policy deters fraud by providing independent verification by someone not involved in handling cash, and helps an SME owner keep on top of their financial position.

SMEs often fail to keep proper accounting records and fail to reconcile their books; they are also prone to human error. This enables banks to make excessive charges to SME’s bank accounts often without them being aware of it. Research has shown that reconciling bank statements improves accountability and helps create profitability for an SME. So using professional accounting software such as MYOB will be of high value addition to an SME in the long-run.

Benefits of Bank Reconciliation
There are a number of important benefits of bank reconciliation for SMEs;

  1. It makes accounts compliant
    Keeping your accounts compliant through bank reconciliation means that when you are aware of the amount that you can spend in your account, you are less likely to overdraw the account, which means withdrawing or attempting to withdraw more money than you have and protects your credit score
  2. It mitigates theft and fraud
    Comparing your bank account’s transactions with the bank’s financial transactions enables you to spot transactions that are recorded by the institution that are not in your records. Examining available original documents will reveal bank transactions that were initiated by unauthorized individuals who steal or commit fraud
  3. It also mitigates honest mistakes
    You will know that a bank is reliable when it implements procedures to avoid making mistakes in your account, the most common is a simple entry error
  4. It helps detect accounting errors
    You will be able to detect accounting errors that commonly occur in business, such as double payments, addition and subtraction errors, missed payments and lost checks. If you have mistakenly recorded an invoice as ‘paid’ on your ledger, bank reconciliation can reveal that you have forgotten to write the check. There are also cases where your bank committed an error in your favor, so you will be liable to return the money even if you have already spent it
  5. It produces an accurate balance
    Bank reconciliation will reveal which cash transactions have been cleared with the bank and which are still outstanding. While a check is the most common form of transaction that would remain open at the end of the statement period, the bank may not clear it as of the ending date of the statement if you made a deposit at the end of the month

Some of the challenges of bank reconciliation;

  1. It can create checks that clear the bank after being voided
    If a check has remained un-cleared for a long period of time, you might have to void it and issue a replacement. If a payee has cashed the original check that you have voided with the bank, the institution should reject it when the payee presents it. This can create endless complications
  2. It can issue un-cleared checks that continue not to be presented
    A bank reconciliation creates un-cleared checks, residual checks that are not presented for payment for a long period of time or are never presented for payment at all. You should treat them similarly to other un-cleared checks by keeping them in the listing of un-cleared checks in your accounting as ongoing reconciling items
  3. It is possible that deposited checks will be returned
    In some cases, a bank may refuse to deposit your check for reasons such as you have drawn it on a foreign bank account. This means that you need to reverse the original entry on that deposit, which will become a credit to your cash account to reduce the cash balance with a corresponding increase in your accounts receivable account
  4. It risks missing transactions
    Missing transactions can be caused by transactions that have been modified while reconciliation is still on process or transactions that have been reconciled in another method of reconciliation. Bank reconciliation should introduce transparency and efficiency into an SME’s accounting system.

Importing bank statements with MYOB
MYOB lets you import account transactions from your bank, such as DBS Bank. When you import a bank statement you can easily compare transactions with the information you have in MYOB Premier / Accounting. You can easily add transactions or make amendments to unmatched transactions.

The main bank feed features within MYOB software help SMEs to:

  • Easily import in bank statements and choose to reconcile transactions with 3 simple clicks
  • Achieve higher accuracy compared to manual bank reconciliation
  • Automatically match the cheque number, amount and transaction date to match the transactions and payments accurately
  • Unmatched transactions are listed for users to easily refer and make corrections
  • Saves time, hassle and cost of incorrect reconciliation which can delay the business month end or year-end closing
  • Works with bank formats from leading banks in Singapore

Importing bank statement and automatically matching transactions minimises human intervention in the transaction process, reducing the potential risk of human error and fraudulent activity.

The advantages of using the bank feed feature to import bank statements into MYOB can result in:

  • Eradication of reconciliation errors
  • 100% consistent exception management
  • Reduced financial risk
  • Improved employee efficiency
  • Consistent business performance
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