How to reconcile bank accounts [xero]

Updated: 11/06/2023
Article #: 244


Bank Reconciliation is one of the core accounting functions that should be completed before a Business lodge any tax obligations with the ATO. It is the process that confirms that all transactions in a bank account or credit card are accounted for in a Business' Accounting system. 

Xero streamlines this process by using a technology called 'Bank Feeds' where the bank transactions are sent from the Business' Financial Institution to Xero on a daily basis.

With Bank Feeds a Business can combine the functions of allocating Receivable and Payable payments to Customers and Suppliers' invoices with reconciling these transactions against the bank account. 

Although this technology makes the process of Payable and Receivable allocation and Bank Reconciliation faster and more efficient, it is often subject to misunderstanding by Business owners who really do not understand the core principles of these tasks.

This User Guide focuses on finalising Bank Reconciliation at the end of a period after all Bank Feeds' transactions for such period have been matched. We have also developed a separate User Guide that covers the most common reconciliation discrepancies. 

Finalising your Bank Reconciliation

The fact that all Bank Feds' transactions have been matched, doesn't equate to the Bank Account being fully reconciled. Xero's Great Job! message, displayed when all feeds are matched, can be very deceiving. 

Scenario 1 - Statement Balance and Xero Balance differ

Although Xero shows a Great Job! message, the screen also displays a discrepancy between the balance from the Bank Statement and the balance according to Xero. This means that, although all bank feeds have been matched, the Bank Account is still not reconciled correctly.

At the bottom of the screen, Xero also recommends comparing the Bank Statement against the balance calculated in Xero. Finally, it provides a link to a Reconciliation Report to help solve any discrepancy. 

è  The Xero Bank Feeds confirmation screen


Scenario 2 - Statement Balance and Xero Balances are the same

This scenario seems a bit more encouraging, Xero confirms that the balance from the Bank Statement and the calculated balance between Xero are the same as of the current date. However, this doesn't necessarily mean that either this balance is correct, or more commonly that the bank account balance and Xero calculated balance reconcile as of the closing date of a set period.

è  The Xero Bank Feeds confirmation screen

Although new technologies may speed up and facilitate the accounting process, they could never fully replace sound accounting methods. All Bank Accounts should be properly reconciled against the physical Statements before the end of any lodgement period. 

Reconcile your Bank Accounts

1. Organise your work

The first task you should complete is to make sure that your Bank Accounts Statements close on the correct dates. If they don't, you should contact your Financial Institution and ask them to amend your Bank Accounts closing dates. Depending on the type of account your statements' Closing Dates should be:

  • Business Bank Accounts > The last day of the month;
  • Savings Accounts and Loan Accounts > The last day of the month, or if you report GST quarterly the last day of the BAS quarter;
  • Credit Cards > unfortunately the Closing Dates of these types of Statements cannot be changed.

Also, you should make sure your Statements are available to download online, rather than being sent by post. Finally, if you engage a Bookkeeper that works remotely you could organise a 'Read Only' access from your Financial Institution to streamline this task (not all Banks have this service available).

 

You should reconcile every account that you receive a "paper statement" from your Financial Institution. 

2. Check if any bank transaction appears on an Unreconciled Status

Unreconciled Transactions are transactions that were posted to a Bank Account but the payment never actually went through the account. 

  1. From your Dashboard, go to your Bank Account's Bank Feeds screen
  2. Make sure that all Bank Feeds transactions for the period you wish to fully reconcile have been matched
  3. Select the [Account Transactions] Tab

    è  The Account Transactions screen

  4. Click on the Status column to sort your Account transactions screen alphabetically by Status (Z-A)
  5. If any Unreconciled transactions are listed you will need to review them and possibly remove them if incorrect.

3. Reconcile the Bank Account in Xero against the physical Statement

  1. Download your Bank Statements from your Internet Banking
    Note: we have a number of User Guides on how to complete this task from the most common Financial Institutions.

    è  The Bank Account Statement


  2. Make note of the Closing Date and the Closing Balance
  3. Go to Accounting > Reports
  4. Select the Report: Bank Reconciliation

    è  The Bank Reconciliation Report screen opens


  5. Select/Enter the following:
    • Bank Account > Select the Bank Account matching the Statement you have just downloaded
    • Date Range > Select the same date range as the date of the Statement
  6. Click on [Update]
  7. Compare the following:
    • Balance in Xero > matches the actual Statement balance from your Bank Statement
    • Statement Balance > matches the Statement balance
  8. Export and save this report together with the PDF copy of the Bank Statement






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