Reconciliation ensures your bank statements align with your books. This article explains how to connect your bank feed, match and create transactions in Xero, set up bank rules and use the cash coding feature for faster processing. Learn to generate reports to spot anomalies and keep your accounts tidy.
Stuart Kerr | Published 04/11/25 | Updated 04/11/25
Bank reconciliation in Xero keeps your accounts accurate by matching bank transactions to your accounting records. Without regular reconciliation, discrepancies build up and financial statements become unreliable. Here’s how to reconcile your bank transactions step by step.
Connect your bank feed
First, connect your bank or credit card account to Xero. This imports transactions directly into your software, saving you time. You may need to use Yodlee or direct feeds depending on your bank. Once connected, transactions will appear in the Bank Reconciliation tab waiting to be reconciled.
Match transactions
For each line on your bank statement, Xero suggests matches from your existing invoices, bills or spend money transactions. Review the suggested match and click OK if it’s correct. If multiple invoices add up to one bank deposit, use Find & Match to select the invoices that make up the total, as described in the Numeric guidenumeric.io.
Create new transactions
Sometimes the bank feed contains transactions that haven’t been recorded in Xero, such as bank fees or interest income. Use the Create tab to record a spend or receive money transaction, select the correct account and tax rate, and save it. Regularly capturing these items keeps your accounts comprehensivenumeric.io.
Set up bank rules
Bank rules automate the reconciliation of recurring transactions. To create a rule, open the transaction in the reconciliation screen and click Create rule. Specify conditions such as payee name, reference or amount, choose the contact and account, and decide whether the rule should allocate the full amount or a split. According to the Integral Bookkeeping Solutions article, you can also name the rule and set how the reference appears on your reportsintegralbookkeepingsolutions.com.au. Edit or delete rules at any time if circumstances changeintegralbookkeepingsolutions.com.au.
Use cash coding for speed
If you have many small transactions (for example, daily coffee purchases or parking fees), Xero’s cash coding mode lets you quickly code multiple items at once. Select the un‑reconciled lines, choose the appropriate accounts and tax rates and click Reconcile to apply the same settings to all selected itemsintegralbookkeepingsolutions.com.au.
Review the reconciliation report
After reconciling, run the Bank Reconciliation Summary report. This report highlights the starting balance, reconciled transactions and any outstanding itemssimplesolutionsaccounting.com.au. Compare the ending balance to your bank statement. If there’s a difference, revisit the un‑reconciled items or check for missing transactions.
Regular reconciliation in Xero ensures that your accounts reflect reality. By connecting your bank feed, matching and creating transactions, using bank rules and cash coding, and reviewing your reconciliation report, you’ll keep your records accurate and ready for decision‑making.
About the Author
Stuart Kerr, Partner in Bookkeeping Packages. You can contact him on stuart@bookkeepingpackages.co.uk.
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