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 $15.75. 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.
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