How (and why) to Reconcile your Xero Bank Account

Xero is great bookkeeping software which allows you to keep up to date accounting records.  Every day all the bank transactions are shown in Xero as Money Spent or Money Received and all you have to do is tell the software what the money relates to.  Is it sales, a transfer from another bank account or some money you’ve put in to buy a new company vehicle?  Is it a paying for some stock, a power bill or are you taking drawings?

Some clients ask us why they have to do it.  Doesn’t the software just automatically code the transactions?  Can’t Beany do it?

Well, Xero is quite intuitive and will make educated guesses about what the transaction is and Beany people can do the same.  But ultimately you know your business better than anyone and you will know exactly what each transaction is so it is better if you code your bank transactions.  

We get a large number of support requests from people who are struggling to reconcile their bank accounts in Xero so here is our quick guide on some of the main problems:

Transfer between Bank Accounts

To ensure this is correctly coded, when you transfer from your main account, use the ‘Transfer’ tab, not the normal ‘Create’ tab in your Reconcile Accounts.  Then when you are reconciling, it will come up as an option correctly in the savings account as well.  If you are transferring to a personal account, that is not shown on Xero, then you code it to drawings rather than transfer.  For the transfer option to work correctly there must always be an in and an out in the accounts shown on Xero.

Matching Sales and Purchase Invoices

Similarly, if you receive or spend money when you have already raised an invoice for the account, you must use the ‘Find & Match’ tab, not just create a sales entry.  However, if you accidentally make a mistake and code it to sales, here’s how you fix it:

Go to Account Transactions in the bank account and search for your reconciled entry.  Tick the entry and then press ‘remove and redo’ (top left, just above the date column).  This puts the entry back into your unreconciled items in your bank account and you can then go in and match to the correct invoice.

Checking that you really are reconciled

Sometimes, it looks like your bank account is reconciled as you’ve coded all your transactions – but you’re not getting the message that it’s all reconciled.  Here’s another tip for checking what’s going on:

Go to All Reports, Accounting, Bank Reconciliation Summary and print that report.  That shows anything that is not reconciled – but also has a handy little feature at the bottom which says:

Balance out by

If you are out, the first place to go and check is in the account transactions again. Search for items that have Unreconciled in orange next to them.  Delete them if they are there – this will often resolve the issue.  Also check for bank transfers that have not been coded on both sides (ie in each bank account).

If in doubt, contact

It’s always best to get on top of your reconciliations and sort issues out as soon as they arise so they don’t compound, or get left until you can’t remember what the issue was.