How to Reconcile Accounts in Xero

Manual, paper-based account reconciliation is a time-intensive, grueling task. Xero’s tools make it easier and faster.

There are probably few financial processes that you loathe more than manual account reconciliation. Matching transactions in the checkbook register to the printed bank statement isn’t so difficult, but the ending balances never seem to match. And there’s no easy way to determine what deposits or checks or service fees you might have neglected to record.

Xero helps automate that unpleasant chore, doing some of the matching itself and letting you set up “rules.” If you’ve been keeping up with your daily bookkeeping, entering every bit of required data accurately (and in a timely fashion), then it will be easier to track down those pesky entries that are keeping you from reconciling than it used to be with paper and pen.

But we won’t sugar-coat it: account reconciliation can still be a challenging process, even using Xero’s helpful tools. Before you attempt it, it would be a good idea to sit down with us and go through all of the mechanics. It’s much easier to learn how to do it right from the start than to go back in and try to untangle accounts that have been compromised.

Bank Feed Best

We’re going to provide a general overview here and show you what some of the reconciliation screens look like.

Xero’s reconciliation tools only work if you’re able to download and import your bank statements or – even better – set up a direct connection with your financial institution(s). If you’ve established a real-time bank feed, you can work on matching your transactions daily or every few days, depending on the volume. Working with statements once a month will obviously take longer.

Here is a reconciliation screen from Xero:

 

Xero 0815 image 1_zpsutzrbhzpFigure 1: Xero will automatically find transactions from your bank feed or statement and the site itself that appear to match.

Once you’ve opened the reconciliation screen, you have four options:

  • Match. Xero finds transactions based on the amounts, closest dates, and contact names. In the above screen, you’ll notice that the top two entries are shaded green. This means that Xero has made an automatic match. You can click OK to accept it.
  • Find & Match. Xero displays transactions for which there wasn’t an automatic match and lets you select one or more. Sometimes Xero won’t automatically make a match because the amount that came in from the bank combined two transactions in Xero. Or one was off by a penny. So you should always try this option on unmatched transactions.
  • Create.  If you can’t find a match in the right column, you can create a Spend Money or Receive Money transaction. You can’t, however, enter a new invoice, bill, or expense claim from this screen. This is why it’s so critical that you’re up to date with your bookkeeping tasks before you reconcile an account.
  • Transfer.  If you need to transfer funds between accounts during this process, you can do so.

Click the Discuss tab and enter notes when you want a reminder of what went on with the transaction.

 

Xero 0815 image 2_zpsficlqonjFigure 2: The Find & Match feature in Xero’s bank reconciliation

Creating Rules

Xero’s automation extends beyond matching transactions. You can create Bank Rules — for a variety of purposes – that will run whenever you do a reconciliation.

Let’s say that your company leases a car for sales representatives to use. You’ve set up an automatic withdrawal to come out of your checking account every month. When this appears on your bank statement, you could create a Spend Money transaction. But you’d have to do this same exact thing every month.

Instead, you could create a Bank Rule. This is a rather complex process, and it must be done absolutely, 100 percent accurately or you will encounter serious account problems. Basically, you’re defining a set of conditions and resulting actions that will create a monthly transaction for your lease payment every time it comes in on the statement. As with the rest of Xero’s reconciliation tools, please let us help you through the first few times.

 

Xero 0815 image 3_zpszvupgffuFigure 3: You can create Bank Rules in Xero to automate Spend Money and Receive Money transactions.

Although bank account reconciliation can be tedious, it’s important, especially if you operate on a thin margin. Xero’s tools help make the process more tolerable. We’d be happy to guide you through your first sessions.

 

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