You know that you need to reconcile your bank account in your Xero software, but you’re not sure how.
In this tutorial, I’ll give you a step-by-step process of how to reconcile your bank account.
4 Steps to Reconcile Your Bank Account in Xero
Step 1. Log in to your dashboard.
Step 2. Click the Accounts tab.
Step 3. Find the bank account / PayPal / credit card account and click on “Reconcile”. It will have state the number of transactions that need to be reconciled. For example “Reconcile 24 items”.
Step 4. You’ll see a list all of your bank statements on the left, and the Xero transactions on the right. If the right transaction is green, it means Xero has found a match with either an invoice or bill. You can click the “OK” between the two and match it.
TIP: Even though Xero will try to match your items, it sometimes get it wrong or doesn’t find a match at all. Read on to find out how to reconcile those special situations.
What to Do When Xero Doesn’t Find a Match
Step 1. Use the find and match feature by clicking on the last tab of the transaction box “Find and Match”.
Sometimes Xero finds multiple transactions with the same amount. For example, multiple invoices or bills with the same gross amount. When you click on Find and Match, a list of all unpaid invoices or bills will be shown by date which you can then match to the right bank transaction.
Step 2. Another situation can happen where a bill wasn’t paid to the correct amount and perhaps is missing a few cents to a few dollars. True story! Xero won’t know that and can’t match it. To find it, click on “Find and Match”, find the bill, and scroll down to “+Adjustments” and choose Minor Adjustment.
TIP: Don’t confuse this with an underpayment of an invoice – credit notes are used for when invoices are not paid to the correct amount.
TIP: You can also include bank fees in the “+Adjustments”
If you need to split the amount between different invoices, you can do that using the split transaction feature. Xero will automatically suggest a balance to split.
Step 3. If you received money for two invoices, in one payment, then you can click on “Find and Match”, find the two invoices, and click on both of them to reconcile the payment. The two amounts need to be equal to the payment for the transaction to turn green and click “ok” as usual.
Step 4. Lastly, you can have partial payments towards invoices and bills, and may have to “split” the invoice to match the payments. In the “Find and match” tab, if you have an invoice with a partial payment, click on “split” and Xero will split the amount to match the bank statement you are working on trying to reconcile.
What to Do When Your Transaction Isn’t in Xero
What do you do if the transaction hasn’t already been posted to your general ledger?
Step 1. Click the Create tab button.
Step 2. Type the name of transaction that shows up on the bank statement ie “Facebook ,Inc” (WHO) and name the account (what) “Advertising”. You can also add details, and receipts to the transaction. Many bank fees, or interest fees usually get “created”, because they only show up on bank statements. (you don’t get receipts for bank fees or interest paid on savings accounts).
Step 3. You can upload files, like receipts, to the transaction.
What do you use the Cash Coding tab for?
The cash coding tab is a more condensed view of your unreconciled transactions. You should only use this after you reconcile transactions using the Reconcile tab.
Once you do that, you can group similar transactions and reconcile them in bulk.
DIY Bookkeeping Takes Time
Learning the technical details of how to organize your books takes time, so if you’re confused or frustrated, I understand. It’s not easy. If you’re at a point where you’re too busy to learn these details and manage your own books, it might be time for you to hire a bookkeeper. Click here to read more about how I can help you.