Xero: How to reconcile your bank account

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To get to the bank reconciliation screen, you can either click the Reconcile x items button on your Dashboard, or select Accounting and then Bank Accounts from the top menu.

You will then see a list of all unreconciled transactions in your bank account that you need to review. There are several ways to reconcile a line on the bank account. The simplest ways are listed below.

Creating a match

For this line item there is nothing suggested by Xero. The way to reconcile it would most likely be to enter the details in the Who, what and why boxes and then select OK.

If you start typing a name in Who it will come up with any suggestions for people or companies you have interacted with previously. If it relates to someone or a company you have not logged before, you can create a new contact from here.

The What will define where the transaction is coded in your accounts. It is important to get this as accurate as possible here to save time late.

The Why box allows you to enter further details about the transaction. You might end up with something like the below:

If you are happy with this, click the OK button that has appeared and the line will be moved from your outstanding reconciliations and be in the correct place in the accounts.

It may be that the item relates to several different things. If that is the case, click add details and you can itemise it as below.

If you have previously bought or sold something similar, Xero may try to guess what the line relates to as can be seen below.

Invoicing and billing

If you use the invoicing functions within Xero, it should automatically match the items as below, and all you need to do is click OK to finish the reconciliation. These items are green because Xero is very confident that this is the correct match.

If you buy or receive goods at a standard price and there is more than one Invoice or Bill in Xero for this amount, there will be an option to look at other matches.

Rules

Another way to save time at the reconciliation stage is to set up rules within Xero. If you have similar transactions month on month, for example your Xero subscription, then you can set up a rule to code it in a particular way. Once a rule is in place Xero will automatically give you an option to reconcile the item as below.

In order to set up a rule, select Options above the payment you want to set up a rule for and then Create bank rule.

Xero will then automatically try to create a spend money or receive money rule based on whether you spent or received the cash for the item you selected. You can have several different conditions attached to when the rule is applied. However I find it is best to simplify the rule to make it apply to as many transactions as possible.

For example, if the Description varies from month to month such as Xero March 2020, Xero April 2020 etc, then I would change the Description field to “Contains” and then the text box just to “Xero”. I also like to only have one condition for each rule to enable it to be used as widely as possible. You can always come back and make it more narrow later if it is trying to apply the rule to too many tranasctions.

In the second part you need to select the contact. You can start typing their name and if you have dealt with them previously they should appear. If not, you can create a new contact.

The important sections here are 3 and 4. You can have various ways of splitting the amount. If it is always completely one thing (e.g. your electricity bill is always coded completely to electricity) then you can select 100% to account Electricity in section 4.

If the bill is always split in a certain percentage between different types of items, then you can also do that. For example, if it is always 75% marketing costs and 25% consultancy you can do that in section 4.

You can also add a fixed amount of the bill to certain codes. For example, if you have a bill where you pay a flat monthly fee for line rental, but then a variable amount for calls, you can add the fixed amount in section 3 with the variable amount being coded differently in section 4.

Section 5 allows you to define how the reference is set from a number of dropdown options.

Section 6 allows you to say whether the rule should only be applied on the bank account the transaction relates to or all of your bank accounts.

Finally you can give the rule a name which will help you find it if you ever need to amend it in any way. If you then click Save you will be taken back to the bank reconciliation screen and you will see that your transaction should hopefully now want you to apply your new rule.

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