How to Reconcile Downloaded Bank/Credit Card Transactions in Xero


Welcome to the Fit Small Business Xero training course In our last lesson we showed you how to add bank and credit card accounts and download transactions into Xero

In this lesson we're going to show you how to reconcile those downloaded bank and credit card transactions To follow along with me, login to your Xero account now, or click the link below this video for a free 30-day trial of Xero You can also click this link to access our full Xero course and other helpful resources Let's get started While you save a ton of time by setting up an automatic bank feed between your bank account and Xero, there are several steps that you must take once your transactions have been imported, to ensure transactions that downloaded into Xero match up with what you have entered into Xero

So for example transaction date, PE, and amount, all transactions have been downloaded into Xero, and there are no missing transactions, and finally all transactions are categorized to the appropriate account This will ensure that your financial statements are accurate and always up to date If you have set up bank and credit card accounts with either a direct feed or a Yodlee feed, then you will receive new bank and credit card transactions at least once a day With this daily update there is no need to wait until the end of the month to reconcile your bank and credit card accounts Before you begin to reconcile a bank and credit card account it is a good idea to make sure that you have entered several transactions for the time period you are reconciling

Invoices, bills, credit note cash refunds, and expense claims Entering these transactions before you begin reconciling will save you time since you won't have to enter them as you are reconciling which may slow you down When new transactions have downloaded from your bank account, you will see a reconcile button that shows you the number of transactions as indicated here in this screen You want to click on this button to see the details of the transactions that need to be reconciled As soon as bank and credit card transactions are downloaded, Xero compares them to transactions that you have entered to Xero

As a result, transactions will generally fall into one of three groups: Match, Bank Rules Applied, or Suggestion Let's discuss each of these next Starting with a match Xero automatically matches transactions downloaded into Xero with the appropriate transaction, for example invoice or bill, in your system The matches are based on amount, closest due date, and then the customer or supplier contact name, in this order

So let's take a look at an example On the left here this is a transaction that was downloaded from the bank so it says review your bank statement lines And then on the right these are transactions that are already in Xero that Xero is trying to match up with So notice how these two transactions Xero has matched up based on the dollar amount, we've got also the date, and then also we've got the check number that appears here and here So what we can do is to accept the match you can go ahead and just click the ok button

And once you do this Xero will mark this transaction as reconciled And it will disappear from the screen If Xero finds more than one possible match then it will match it to the most likely transaction and then provide a link to the other possible matches as indicated here If you don't want to accept the match that Xero has made you can simply click this link to other possible matches found, and select the appropriate item that should be matched up with that transaction Bank rules are a way to quickly reconcile transactions that you have not entered into Xero

This comes in handy especially for those recurring transactions For example let's say that Bluehost bills you monthly for web hosting services You can set up a rule that will always code Bluehost transactions to an expense account called web hosting fees To learn more about how to set up bank roles you can click the link below So if I download a transaction that meets the criteria of a bank rule, then Xero will apply that bank rule as it has done in this example here

So notice we have a notification here that says apply rule And so if we want to go ahead and accept the rule application we can click OK if you don't want the rule to be applied you can click the ok button here to go ahead and accept the rule that was applied, or you can click the don't apply rule link if you don't want the rule to be applied If Xero cannot find a matching transaction or a bank rule to apply, then it will suggest that you create a transaction based on a previously reconciled transaction with similar details So as indicated that's what Xero has done here where it has already populated the who, what, and why description based on this transaction or a similar transaction that was reconciled maybe in a previous month

So to accept this transaction you can also click the ok button and Xero will go ahead and mark this transaction as reconciled The majority of your banking credit card transactions will most likely be reconciled using one of the three methods that we just discussed However, if you still have a few unreconciled transactions, we've got a few more techniques that may help you Let's start with the find and match tool then we'll talk about spend and receive money transactions and finally we'll wrap it all up with cash coding You can search for a bill, invoice, or account transaction that was entered into Xero and reconcile it with a downloaded transaction from your bank

From the reconciliation window here, find the transaction that you need to locate a match for So we'll do this one here And to the right you want to click this link that says find and match In this next screen you will be shown a list of transactions that match to the downloaded banking transaction So within this screen you can scroll down to review the transactions to locate one that will match the transaction that was downloaded

And so as you can see we've got a couple of transactions for this Smart Agency which is the same information up here This is going to be ideal if you've got more than one transaction in Xero that matches up with one line item from your bank statement So to select the transactions you want to just go ahead and put a check mark in the box of the transactions that you want to go ahead and match up So notice that these two transactions total $4,500, which also totals the transaction that was downloaded from our bank If you scroll down to this section it's just showing you the transactions that was selected to confirm that those are the transactions you want to match up

So you want to go ahead and verify that that's correct If you need to add a new transaction in this screen for some reason you can actually do that by clicking this button here When you enter a new transaction you can enter a spend money or a transfer money transaction here To learn more about spend money transactions, click here to check out our How to Manually Enter Bank and Credit Card Transactions Lesson So we are satisfied that these two items match up with that particular transaction, so we'll go ahead and click the reconcile button here to accept that

For those transactions that you know you have not previously entered into Xero, you can add a spend or receive money transaction to record and reconcile a payment that is not related to an invoice, bill, expense claim, or a bank transfer Remember you only want to do this for transactions that you have not entered into Xero So for example this Cooper Street Bakery transaction here for $1575 We know that is not in Xero so we'll go ahead and create a spend money item here

So make sure you're on the create tab and then we'll go ahead and complete this information here So go ahead and complete the who field from the drop-down, on the what you want to select the correct account that this needs to be categorized to, and it's optional but usually I like to put a description in the live field here for the purchase So once you complete those fields you can go ahead and click OK to reconcile that item The third technique is called cash coding Cash coding shows all unreconciled bank and credit card transactions that have been downloaded into Xero in a spreadsheet format

So you will create a spend or receive money transaction that matches and reconciles with the downloaded banking transaction So to do that we'll go ahead and click on the cash coding tab here to the right of the reconcile button Please note that cash coding can be a very powerful tool and should only be given to an experienced bookkeeper or accountant To learn more about user permissions, our How to Invite Multiple Users in Xero Lesson walks you through how to grant or restrict access in Xero You can click here to access this lesson

Alright here is our cash coding window So in this screen we have our transactions, the same ones that were on the previous screen that still remain unreconciled So we've got our columns here across the top and you can actually sort most of these columns by just clicking on the column name, to sort all the payees together for example which can be very helpful as you'll see in a few minutes here Let's talk about the rest of these fields so we've got a payee field which is who the payment was made to, or maybe who the payment was received from if it was a received item And the reference field that's typically optional and it can be used to enter a reference number or any additional information that you would like to indicate here to identify the transaction

And then description, this field is also optional You can use it to enter additional information about the transaction The account field is a required field and you are going to select that from the drop-down here to properly categorize the transaction The tax rate field is also a required field and so you will select the appropriate tax rate from the drop down here as well One of the benefits of using the cash coding technique is that it allows you to code a batch of transactions all at once

So let's go ahead and take all of these Central City Parking expenses and we'll go ahead and put a checkmark here next to each of these And so we'll go ahead and batch code all of these since they are the same payee So to batch code all of these transactions we only need to complete the fields for the very first transaction So we'll go ahead and do that and then you'll see how it works So downtown parking fees, and then I'll press tab to move over

Notice how Xero copies 'downtown parking fees' to the remainder of those transactions in the list And then we'll go ahead and select the account here from the drop-down, automobile expense And I'm going to press tab once again Xero has copied the account down to every field that I selected And the tax rate we'll go ahead and select here, zero percent, and press tab So what's nice about this is instead of coding each transaction separately, you can batch code transactions as I mentioned

And then once you have completed all of the information that you'd like to indicate here you can click the save and reconcile selected button here, and all of those transactions have been saved and reconciled successfully here Be sure to check out shortcuts on how to reconcile using cash coding You can click the link below to access this information After you have reconciled all transactions, you need to make sure that you are in balance This means that all downloaded bank and credit card transactions match up with a transaction in Xero

You can do this in a couple of ways First take a look at the bank balance that appears on the dashboard So on the dashboard here we've got a statement balance and you want to make sure that balance matches with what your bank statement says If you are in balance then good job However, if you still have unreconciled items and you were under the impression that you had reconciled everything, then you need to review the reconciliation summary report

We will talk about both of these next To run the bank reconciliation summary report we're going to navigate to reports, all reports, go down to the accounting section, and then you should see the bank reconciliation summary report So we'll click on that So in this screen we want to go ahead and select the bank account and the date that we know we reconciled transactions through, and go ahead and click the blue update button to update that information And so here, this is where you're going to actually see the comparison of the balances in Xero to your bank statement balance here So as you can see they do match which is always the goal here

If you scroll back up to the top you'll notice this tab that says bank statement And so we'll click on that So here what you're going to see is this is going to display each banking transaction that was entered manually or downloaded into Xero via the bank feed In this screen you can see the transaction date, the description, the date the information was imported into Xero, reference information, and if you scroll down and there's a scrollbar to go over to the right, you also see a column that says reconcile So that lets you know the transaction has been reconciled

Again it means you have a transaction that's been matched up in Xero to the downloaded banking transaction The source of the information here we see imported, the amount, and then again the running balance on the account after each transaction has been calculated On this third tab here next to bank statement: Statement Exceptions This tab will show a list of transactions that were not reconciled along with the reason So fortunately we don't have any information here for this time period

But as you can see based on the columns it will show a reason here, the amount, and all the other details of any transactions that were exceptions This is the report that you're going to want to focus on if you still have those unreconciled transactions on the dashboard, even though you thought you had reconciled everything You want to come right to this report to see what transactions are causing the issue if you are still out of balance after reviewing the bank reconciliation summary report, the bank statement, and the statement exceptions, go ahead and take a look at our troubleshooting tips on reconciling You can click the link below to access this information And that's going to wrap up the lesson on how to reconcile downloaded bank and credit card transactions, also known as bank feeds, in Xero

To access a full Xero course or any of the other lessons in this series, click this link You can also find a link below this video for a free 30-day trial of Xero If you have feedback about this course or if you have any questions, Please leave a comment below Also, don't forget to subscribe

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