Sep 12 / Victoria Grimshaw

How to Reconcile in Xero?

Bank reconciliation is the basis of processing your accounts and Xero makes that easier for you by being able to connect directly to your bank to get your daily bank feeds. However, how do you actually deal with those bank statement lines? What do you need to do?

Well, the first principle of bank reconciliation is to match the correct transaction to your bank statement line. In Xero, you either create the transaction before the statement line comes through (e.g. in the form of a Sales Invoice), or you can create that transaction on the fly in the bank reconciliation screen (through Spend or Receive Money transactions, using the Create tab). 

However, some bank statement lines can be more complicated than others. For example, what if your customer pays for two invoices in one statement line, how do you reconcile that 1 line to the 2 invoices? 

Or, what if you have made a cash refund to a customer for unreceived goods? What do you do then?

There are a number of not so straightforward reconciliation scenarios that often come up in your  business. As a Bookkeeper for 10 years, I’ve seen them all. When I worked for Xero in their Customer Service team, I helped write an article on how to deal with a particularly sticky reconciliation scenario that Retail often encounters, that went on the Xero Help Centre page. 

In the Xero for Small Business 101 course, I start off with the basics and a few trickier scenarios, like how to deal with payments that are a few cents out.

 In the Xero For Small Business 201 course, I go on to teach more difficult scenarios like Overpayments (when you or a customer pays too much for an invoice).

Xero makes the reconciliation process look nice and easy with happy green “OK” and “Reconcile” buttons, but if you get too trigger happy, you can start digging yourself some big holes.  Like I say, I’ve seen it all before and teach how to deal with common and tricky reconciliation scenarios correctly. Making mistakes can be costly to fix if your accountant has to get involved so you want to make sure you know what you’re doing. 

A final note, when you have reconciled all of your lines, your Statement Balance and Balance in Xero should match. Your Statement Balance is the sum of all your bank statement lines and your Balance in Xero is the sum of all your entered transactions and so your reconciliation is complete when they both match. If they don’t, this can indicate a number of problems, which are covered in the Xero For Small Business 201 Course

Check out all our courses here  

Ready to make your accounts easier?