Bank reconciliation

Bank reconciliation is when you match statement lines from your bank account with transactions you create in Xero. Xero automatically matches transactions in Xero with statement lines where it can.

Bank reconciliation

Alternatively, to reconcile your statement lines, you can create Spend or Receive Money transactions on the spot or find and match transactions you've already entered into Xero.

Add a Spend Money transaction for money going out of your bank account
Add a Receive Money transaction for money going into your bank account

Brief video introduction to bank reconciliation in Xero.

Video: Banking (4:22)

How to check if your balances don't match.

Video: Reconcile a bank account (1:44)

Get to the Reconcile screen by using either the:

Your user role will determine if you have full access to reconcile bank accounts. If you have the Adviser user role, you'll have an additional tab for cash coding.

Use reconciling a foreign currency bank account if you're doing that, as it'll be slightly different to reconciling your base currency bank account.

Bank rec

Before you start: things you need to know and do before you reconcile

Process of entering transactions and downloading statements ready for reconciliation

We recommend you follow this process before you reconcile - it'll make it easier for you to do your bank reconciliation.

1. Enter invoices or bills in Xero (and make sure they're approved and awaiting payment)

Add or edit a bill you have received
Add or edit a sales invoice

2. Enter cash refunds on credit notes

If any imported statement lines represent cash refunds on credit notes, find these credit note transactions in Xero and enter the refund directly to them.

Credit notes don't display while you're reconciling, but refunds you enter on credit notes do.

Enter a cash refund on a credit note

3. (Optional) Enter spend and receive money transactions

You can enter spend money and receive money transactions before or during reconciliation. Don't do it before reconciliation if you're using bank rules or if you prefer to create spend and receive money transactions while you're reconciling.

Enter spend money transaction
Enter receive money transaction
Bank rules

4. (Optional) Enter part payments on bills, invoices and expense claims

If any imported statement lines represent part payments on bills, invoices or expense claims, find these transactions in Xero and enter the payments directly onto them.

Enter part payments directly onto bills or invoices
Enter expense claim payments directly onto claims

5. (Optional) Enter bank transfers

Enter bank transfers

6. Import statement lines from your online bank

Import statement lines from your online bank account so you can match these with the transactions you've entered in Xero.

Import an OFX bank statement file into Xero

Import a QIF bank statement file into Xero

Import a CSV bank statement file into Xero

Set up a bank feed to automate statement imports

Mark a transaction as reconciled if you can't import its corresponding bank statement line

7. Start to reconcile your account

Use the following tables as guides on how to deal with different reconciliation situations:

Guide to reconciling statement lines if you've entered your transactions in Xero
Transaction/s entered in Xero Statement line Tab/link
Most likely course of action Other possible courses of action
Any transaction type from this list Statement line matches transaction Match tab Accept match Change match
Any transaction type from this list Statement line matches more than one transaction Match tab

Change match

Any transaction type from this list Statement line matches rule conditions and transaction Accept match  
Any transaction type from this list Multiple statement lines equal transaction Find & Match link Find multiple bills or invoices  
Any transaction type from this list Statement line is slightly more or less than transaction Find & Match link Adjust transaction  
Any transaction type from this list Statement line is slightly less than transaction due to bank fee Find & Match link Add bank fees  
Invoice, bill or expense claim entered. No part payment entered on invoice, bill or expense claim Statement line is part payment of transaction Find & Match link Split invoice, bill or expense claim  
Multiple transactions (any type from this list) Multiple statement lines match transactions Find & Match link Find multiple bills or invoices  
Invoice, bill or expense claim entered. Part payment entered on invoice, bill or expense claim Statement line part payment matches part payment entered on transaction Match tab Accept match

Change match

Transfer entered between 2 bank accounts in Xero Statement lines match transfer in and out of Xero bank accounts Match tab Accept match  

 

Guide to reconciling statement lines if you haven't entered your transactions in Xero
Transaction/s not entered in Xero Statement line Tab/link
Most likely course of action Other possible courses of action
Invoice, bill or expense claim entered. No part payment entered on invoice, bill or expense claim Statement line is part payment of transaction Find & Match link Split invoice, bill or expense claim  
No transaction entered Statement line matches rule conditions Create tab Apply rule Don't apply rule in these situations
No transaction entered Statement line matches previously imported and reconciled statement line Create tab (suggestion based on previously imported statement line) Don't accept suggestion in these situations
No transaction entered Statement line doesn't match any previously reconciled statement line Create tab (create new spend/receive money)
No transfer between 2 bank accounts entered into Xero Statement lines show transfer in and out of bank accounts in Xero Transfer tab Create quick transfer  

Transactions you can reconcile

Xero will try to match these types of transactions you've entered into Xero with imported statement lines:

Limitations to reconciliation

These things may limit your ability to reconcile:

Match tab: reconcile a transaction Xero has matched

Xero automatically matches your imported statement lines with transactions you've entered into Xero. Xero bases this on the amount and closest date of the transaction in Xero compared to the imported statement line.

For invoices or bills, the closest date means the invoice or bill due date. Xero also uses the Reference field on sales invoices.

When Xero makes a match it'll show as a matching transaction under the Match tab in green. The match won't always be right, and it's easy to change it if it's not.

Image showing the Match tab on the Reconcile screen.

You can stop Xero suggesting matching transactions for an account by unchecking the Suggest previous entries check box at the bottom of the bank reconciliation screen. This will turn off matching suggestions for this account for all users in your organisation.

Image showing check box for auto-suggest on bank rec.

Accept the match made by Xero
Change the match made by Xero
Choose from other possible matches found
Why Xero might not make a match and what to do
Use the Reference field to help match sales invoices

Accept the match and reconcile

If Xero has matched a statement line with the right transaction in Xero, click OK to accept the match and reconcile.

bank rec - match OK.png

If you're reconciling older statement lines, check that Xero's match is for a similar date so you don't accidentally reconcile to a more recent occurrence of the transaction.

If you've downloaded a QIF statement with dates Xero could interpret as DD/MM/YY or MM/DD/YY and you didn't confirm the date format when you imported the statement, you may find that Xero has matched to what it sees as the closest date.

If you reconcile a statement line with a date earlier than the invoice, bill or expense claim, some reports won't show this payment if you generate them based on invoice or bill date.

Find & match the right Xero transaction to match the statement line

Change the match and reconcile

If Xero has matched a statement line with a transaction that you don't want to accept, you can change it.

bank rec - find match link.png

Use the:

Sometimes you'll need to find and match your transaction when the statement line is slightly different to what you've entered into Xero. Reasons for this might be:

Choose from other possible matches found

If you have checked Suggest previous entries, sometimes Xero finds more than one Xero transaction (with the same amount and similar dates) to match to the imported statement line. When this happens, Xero will match what it thinks is the most likely and provide a link to the other transactions that are good alternatives.

If you don't like the match Xero has made, use the Other Possible Match Found link to select one of the other possible matches.

Other link

View alternatives

If the other possible matches aren't right, from here you can:

If you're looking for a bill, invoice (or payment on a bill or invoice), expense claim (or claim payment), or a cash refund, you need to enter it first.

Create a sales invoice
Create a bill
Create an expense claim
Enter a cash refund directly on a credit note
Enter an expense claim payment directly onto claim

Why Xero might not make a match and what to do

You haven't yet entered the transaction into Xero

If you haven't entered the transaction into Xero, Xero won't make a match (or won't make the right match) during bank reconciliation. To be able to create a match and reconcile, do one of these actions:

You've entered the transaction in Xero but you can't find it to reconcile with the transaction

Xero won't match any invoices, bills or expense claims you've entered but haven't approved, or that you've marked as paid.

The statement line amount doesn't match the transaction amount entered into Xero

If your statement line amount doesn't quite match the transaction in Xero (e.g. if someone enters the wrong amount when paying you), Xero won't make a match (or won't make the right match) during bank reconciliation.

Depending on why the statement line doesn't match the transaction, you can do any of these to make a match:

The statement line is for multiple bills or invoices you've entered into Xero

Find multiple bills or invoices to match a statement line

Several statement lines are for several bills or invoices but individual lines don't match individual bills or invoices

Find multiple bills or invoices to match to multiple statement lines

Several statement lines are for one bill or invoice in Xero

Create a split to apply a part payment while you're reconciling

Create tab: create a transaction based on a bank rule

Any bank statement line that meets conditions you've created for a bank rule will show on the Create tab. In other words, Xero has suggested a spend or receive money transaction in Xero for you to create based on your rule, so you can reconcile it with the bank statement line.

Image showing the Create tab matched to a rule on the Reconcile screen.

Apply the rule
Don't apply rule in these situations

Create tab: create a spend or receive money transaction Xero has suggested

If Xero can't find a match, it will suggest a best guess transaction ready for you to create, based on a previously reconciled spend or receive money transaction with similar details. Xero uses the payee, particulars and reference to determine similarity, then enters the name, account and description on the Create tab from that previously reconciled spend or receive money transaction. The suggestion won't always be right, and it's easy to change it if it's not.

Image showing the Create tab with an auto-suggestion on the Reconcile screen.

Accept suggestion
View or add more details to suggestion
Don't accept suggestion in these situations

Accept suggestion and reconcile

If Xero's suggestion is right, and you don't need to change any details, select OK to accept the suggestion and reconcile it.

Xero will create an account transaction that reconciles with the downloaded statement line.

View or add more details to Xero's suggestion

If Xero's suggestion is right, but you want to add to or change some details, select the Add Details link.

View or enter more details using the create new transaction screen

Don't accept spend or receive money suggestion in these situations

Xero has also made a match on the Match tab, and the match is correct

Reconcile the match if it is correct

You have already entered the transaction in Xero

Find and match the Xero transaction manually

Xero should have made a match but for some reason it hasn't

In situations where there is a slight difference in statement line amount, or if there's one payment for multiple bills or invoices, Xero won't make a match, and may offer a suggestion instead.

Find and match the transactions in Xero manually
Reasons why Xero might not make a match and what to do

You want to change details of the suggestion

Add details to the transaction

You have set up a rule to deal with this transaction

Apply the rule

You don't want Xero to use the suggestion

Create a spend or receive money transaction on the spot

Create tab: create a spend or receive money transaction when there is none

If Xero can't find a match or it doesn't create a suggestion, it will leave the statement line unmatched ready for you to create or find a transaction to match to.

Only create a spend or receive money transaction if there isn't a match or suggestion, and you haven't already entered the transaction in Xero.

Image showing the Create tab with an auto-suggestion on the Reconcile screen.

Quickly create spend or receive money with minimum details
Create new spend or receive money transaction in full
Don't create invoices, bills or expense claims while you're reconciling
Don't create transactions in these situations

Create quick spend or receive money transaction with minimum details, and reconcile

Create a Xero spend or receive money transaction quickly by adding contact name, account and description under the Create tab. Select tracking (if you've set this up), and a tax rate.

If you enter a name that does not already exist as a contact, Xero will create a new contact.

After you've completed all fields you can select OK and you've reconciled! This creates an spend or receive money account transaction in your bank account in Xero.

bank rec - create tab enter ok.png

Learn how to merge a contact if you create a duplicate

Create full spend or receive money transaction and reconcile

Select Add Details to enter a full spend or receive money transaction within the bank reconciliation process. Don't create a new invoice, bill or expense claim from here.

You'll be taken to the Find & Match screen to enter your transaction.

More about spend money transactions
More about receive money transactions
Create a sales invoice
Create a bill
Create an expense claim

Don't create a spend or receive money transaction in these situations

If the statement line is for an invoice, bill or expense claim

Don't enter invoices, bills or expense claims using the Create tab if the imported statement lines are payments on an invoice, bill or expense claim.

Instead, add them from Purchases, Bills, or Expense Claims. Make sure it's awaiting payment before you match in bank reconciliation.

Create a sales invoice
Create a bill
Create an expense claim

Creating details on the Create tab creates a spend money or receive money item in your Xero bank account which can't be linked to the invoice, bill or expense claim. So if you do this, it'll look like you have duplicate transactions in Xero: one for the invoice or bill (or payment you made on it), and another for the bank transaction created by entering a new transaction during reconciliation.

If you've already entered the invoice, bill or expense claim but a match isn't found, check that it's approved in Xero.

If the imported amount is a partial payment, enter this payment on the invoice, bill or expense claim so that the payment displays in Xero as a potential match.

You have already entered the transaction in Xero

Find and match the Xero transaction manually

If the statement line amount differs slightly from the transaction you've already entered into Xero

If the imported statement line has a slightly different amount from the transaction you know you've already entered into Xero, it won't recognise that the 2 items should match.

Use a reconciliation adjustment to match the 2 items

Transfer tab: create quick transfer between bank accounts in Xero

Xero's Transfer tab lets you enter a quick transfer between 2 Xero bank accounts during bank reconciliation.

Use the Transfer tab when you've imported a statement line (or lines) showing the transfer but you haven't entered the transfer into Xero.

bank rec - intro - transfer tab.png

If you've reconciled a similar transfer before, Xero will select the bank account for you on the Transfer tab. If the bank account is wrong, or Xero hasn't selected a bank account, choose the account the transfer is coming from or going to.

If the statement line shows the:

You can add a reference to explain the reason for the transfer if you wish.

Select OK to create a matching account transaction and reconcile this part of the transfer. You'll still need to reconcile the 2nd account transaction for the opposite part of the transfer.

Image showing the Transfer tab on the Bank Reconciliation screen.

You don't need to create a transfer for each money going out and coming in transaction. This is because Xero creates 2 account transactions for each transfer you create: one for the bank account you are transferring money from and another for the bank account you are transferring money to.

See our worked example of a transfer between 2 accounts

Alternatively, you can:

Worked example of transfer from Consultancy to Savings account

Using our online banking, we have transferred 1000.00 out of our Consultancy account into our Savings account.

When we import statement lines for these accounts into Xero the 1000.00 shows as:

Xero can't match anything in bank reconciliation because we haven't entered the transfer into Xero. Here's what we do to reconcile the 2 statement lines for the transfer:

  1. Select either bank account to reconcile. We've chosen the Consultancy account which the money came out of.
  2. Under the Reconcile tab, find the statement line that relates to the transfer and select the Transfer tab.
  3. Select the bank account in Xero to create a match. We select the Savings account which we transferred the money into.

    Image showing statement line that's part of transfer between accounts.

  4. Add a reference if required.

    Image showing bank transfer reference field filled in.

  5. This creates a match and we select OK to reconcile the 1000.00 statement line for the money spent from our Consultancy account.

    This shows as reconciled under the Account Transactions tab.

    Image showing account transaction after reconciling transfer statement line.

  6. When we selected OK, Xero created 2 account transactions. We've just reconciled the transfer out, and now we have to reconcile the transfer in.

    Go to the Reconcile tab for the Savings account, and find the unreconciled statement line that relates to the money we received as part of the transfer.

    Image showing transfer statement line matching account transaction.

  7. Xero has matched the statement line with the 2nd account transaction it created when we reconciled the other part of the transaction in step 5. We select OK to reconcile the 1000.00 statement line for the money received into our Savings account.

    This shows as reconciled in our account transactions.

    Image showing account transaction after reconciling 2nd transfer statement line.

Find & match: find, create or change a transaction in Xero

Use the Find & Match link to find transactions you've entered into Xero so you can match them with imported statement lines. You can also change transactions already in Xero, and create transactions and transfers if your find and match isn't successful. Everything you can do on the Create and Transfer tabs, you can also do using the Find & Match link.

bank rec - create tab find match link.png

Search and find transactions to reconcile with statement lines

Use the Find & Match link in bank reconciliation to search and find transactions you've entered into Xero that are awaiting payment and available to reconcile.

If you are reconciling money you've spent, only these Xero transactions will display, and likewise for money you've received.

For bills, anything you entered anything in the Reference field will display in the Ref/Number column. The automatically generated invoice number will show for awaiting payment sales invoices, otherwise the column will be blank.

Image showing the find and match screen under bank reconciliation

 You can:

Find & match: find multiple invoices or bills to match with a statement line

Statement line

If you bank a whole lot of cheques in one go, or pay many suppliers at once using online banking, it might pay to:

Doing this will help you quickly identify each invoice or bill during reconciliation if the statement line from your bank combines the cheques or payments as one large amount.

Bulk matched

Find & match: find invoice or bill to match part payments

If your statement line is a part payment of an invoice, bill or expense claim payment, split it to apply the part payment during reconciliation.

You can record as many part payments as you need, to fully pay the transaction.

Use the bank reconciliation's Find & Match link to find your invoice, bill or expense claim transaction. Then select the invoice, bill or expense claim that you want to apply the partial payment to.

Bank rec

Use the Split link that appears next to the transaction to split the transaction and record a part payment. Xero enters the statement line amount in the Part payment field for you, if the transaction is greater than the statement line. To reconcile the statement line, click the Split button, then Reconcile.

Create split

The split payment shows as a payment made on the account transaction. Any remaining amount due on the invoice, bill or claim will remain displayed in the list of items that can be reconciled.

Payment on invoice

You can easily reverse the split by using the Unsplit link.

Unsplit

Alternatively, you can record the payment directly on the invoice, bill or claim before you reconcile the payment.

Record payment of a sales invoice or bill
Record payment on the expense claim

Find & match: find multiple bills or invoices to match multiple statement lines

Use the Find & Match link to manually find multiple bills or invoices to match multiple statement lines while you're reconciling. Xero won't identify these matches without your intervention.

Use the Split link that appears next to one of the transactions to split it and record a part payment. Enter your part payment amount and click the Split button. This leaves the remaining amount that you can reconcile with the remaining statement lines.

Example

We've imported 2 statement lines for 150 each which are payments for 2 invoices in Xero of 100 and 200. We perform a split on the 200 invoice that's awaiting payment, recording the partial payment of 150. (This effectively splits the 200 invoice into 2 transactions of 150 and 50.) The invoice and the statement line match and we can reconcile it.

We then match the remaining 50 on the first invoice and the 2nd invoice awaiting payment for 100 to the unreconciled statement line of 150.

Multiple dont match

Using Find & Match we find the 2 remaining transactions to match with the 2nd statement line.

Multiple does match

Alternatively, apply the part payment directly to the invoice or bill before reconciling

Adjust transaction to match statement line

If the imported statement line doesn't quite match a Xero transaction you can still select the transaction and enter an adjustment to make up the difference. There are many reasons why 2 items that should match don't: perhaps figures were mistyped when the transaction was entered into Xero, or by the customer when they paid you.

To start the process of entering an adjustment, select the Xero transaction you want to match to the statement line.

bank rec - find match adjust 1.png

Then use the Adjustments drop-down button and select Minor adjustment.

Image showing the Minor adjustment button on the reconciliation screen.

Enter the difference between the imported statement line and the transaction in Xero as a positive or negative amount to create a match. There's no limit on the adjustment amount, but it's intended that adjustments during reconciliation are for small amounts. Xero will warn you if you enter an amount greater than 1.00.

bank rec - find match adjust 3.png

Once the total of the transactions selected and the adjustment equals the statement line total, the match will be accepted. Use the OK or Reconcile button to accept the match and reconcile.

It's up to you whether you want to adjust amounts in Xero and in what circumstances you do it - if you don't want to chase up your customer for correct payment or resend an invoice for example. Amounts you enter as adjustments go to the Rounding account in your chart of accounts.

Add bank fees to a transaction to match a statement line

Use the Adjustments drop-down button and select Bank Fees to quickly add bank fees straight from the bank reconciliation screen.

Bank fees

You can then add a fee to account for any fees such as a cash handling or cheque deposit fee that your bank has charged you. This will let you match the imported statement line with the bank fee to a transaction in Xero.

Reconcile

The bank fee transaction will show as a spend money transaction in your bank account.

Create a new spend/receive money or transfer if find and match isn't successful

Create a new spend or receive money transaction in full and reconcile

Create a new spend or receive money transaction in full in the Find & Match screen. Use the New... drop-down button and select Spend Money or Receive Money (whatever option is available to choose).

You can't create a new invoice, bill or expense claim from this screen. So if you create a spend or receive money to reconcile your statement line (when you should create a bill or invoice) your transaction won't show on any invoice-based reporting, e.g. the Aged Payables report.

Xero will enter the details it knows about the transaction (based on the imported statement line) into a new transaction screen for you.

The fields for entering the transaction behave the same way as entering a spend money or receive money transaction.

Image showing spend money transaction from bank rec.

More about spend money transactions
More about receive money transactions
Create a sales invoice
Create a bill
Create an expense claim

Save transaction or cancel

Save Transaction will create the new transaction as a match to the imported statement line. Cancel if you do not want to save the transaction at all.

Reconciling your transaction

Once you've entered and saved the transaction, you can accept the match and reconcile the account transaction to the imported statement line. Use either OK or Reconcile.

bank rec - create new ready to rec.png

Cancel will keep the newly created transaction you've saved in the list of bank transactions but will not reconcile it to current statement line. You can reconcile it to this or another item later.

Create a new transfer in full and reconcile

Create a new transfer in full in the Find & Match screen. Use the New... drop-down button and select Transfer Money.

Image showing how to create a full transfer in Bank Reconciliation.

Xero automatically enters the date of the imported statement line into the transfer screen for you, and whether it is a transfer into or out of this account.

Complete the other fields and select Transfer.

Image showing a transfer between bank accounts using the Find & Match on the Bank Reconciliation screen.

The fields and buttons behave in the same way as transferring money using the Transfer Money screen.

Once you've created the transfer, accept the match and reconcile the new transfer to the imported statement line. Use either the OK or Reconcile buttons.

Image showing full transfer created in Bank Reconciliation then Ok to reconcile.

If you select Cancel at this stage, you'll save the newly created transaction in the list of account transactions but will not reconcile it to statement line. You can reconcile it to this or another item later.

Alternatively, you can:

Use comments during reconciliation to help others code transactions

Add comments to help code transactions correctly

Use the Discuss tab to enter optional comments that you and others can use during the reconciliation process. You might use this if you're unsure what a downloaded bank statement line relates to and you want to add a note for other users to see and comment on.

When you enter or change a comment a Save button will display. When you save your comment, any other user who has access to the bank reconciliation screen will see it, and the Discuss tab will display an asterisk (*) to alert you.

Entering a comment to a statement line is a separate exercise to reconciling it. You'll still need to find or add a new transaction in Xero and to reconcile it.

View comment

Add comments to help your accountant or bookkeeper code transactions

Add comments to your bank statement lines to make sure your accountant or bookkeeper codes your transactions correctly. You'll need to be as specific as possible about what the statement lines relate to in your business, and if they are for part payments.

The 3 pieces of information your accountant or bookkeeper will need are:

  1. Who the payment was to or from
  2. What the expenditure or income was
  3. What it was used for

Cash Mgr view

Viewing comments added to the Discuss tab

If you use Partner Edition and reconcile the bank accounts for users who have the Managed Client role, you'll see comments they've added about bank statement lines. You can then use this information to code the transaction to the right account. Similarly, if you add comments, they can view and edit your comments.

If you have the Adviser user role, you'll see comments entered on statement lines when you're reconciling using cash coding.

View a saved comment until you reconcile the statement line. After reconciliation Xero includes comments as a note at the bottom of each bank transaction under History & Notes.

Comment history

Managed Client user role
Cash Coding
History & Notes

Having trouble reconciling or balancing?