What is Bank Reconciliation in Xero?
Bank reconciliation is the process of matching the transactions recorded in your Xero account with those in your bank statement or bank feed.
It ensures that your company’s cash records are accurate, up to date, and aligned with your actual bank balance.
In Xero, reconciliation can be performed manually (via uploaded bank statements) or automatically (via bank feeds). View here for more info about:
Once set up, Xero compares each transaction and suggests matches for you to confirm, making the process quick, reliable, and audit-ready.
How to Reconcile Bank Transactions
Bank reconciliation in Xero is essential for keeping your financial records accurate and up to date. Xero offers three primary ways to reconcile bank transactions:
Match – Find and match existing transactions (e.g. invoices, bills).
Create – Manually enter a new transaction if one doesn’t exist.
Transfer – Record transfers between bank accounts.
Additionally, you can automate the process using Bank Rules, which apply default coding and descriptions to recurring transactions.
Steps to Reconcile Your Bank Transactions
Using the Match Function
Step 1: Go to Accounting, choose Bank accounts, then select the bank account you want to reconcile.
Step 2: You will see the Reconcile tab. Xero will display your imported bank statement lines on the left, and possible matching transactions from your Xero records on the right.
Step 3: Review Xero’s suggested matches. If correct, click ‘OK’ to reconcile the transaction.
Use this when Xero doesn’t automatically suggest a match:
Step 1: Click ‘Find & Match’ on the bank transaction you want to reconcile.
Step 2: Use the search bar to find related transactions such as invoices, bills, or spend/receive money entries. Tick the checkbox to the left of each matching transaction to select one or more items.
If a single bank transaction covers multiple items, click ‘Split’ and divide the payment across the relevant invoices or accounts.
Step 3: If there’s a small remaining difference, either use the ‘New transaction’ tab to record an adjustment or allocate it to the correct account (e.g. Bank Charges or FX Gain/Loss).
Step 4: Once the amount has matched, click ‘Reconcile’.
Using the Create Function
Use this when no existing transaction exists in Xero for the bank line:
Step 1: Click ‘Create’ on the bank transaction. Enter the payee, description, amount, and any required coding such as account code and tax rate.
Step 2: (Optional) If more details are needed or you want to use a specific transaction type like overpayment or prepayment, click ‘Add details’, and fill in the fields.
Step 3: Click ‘Save Transaction’ to reconcile.
Using the Transfer Function
Use this when moving money between two bank accounts in Xero:
Step 1: On the bank reconciliation screen, locate the bank transaction that represents a transfer between your accounts.
Step 2: Click ‘Transfer’.
Step 3: Select the destination bank account where the money was transferred to.
Step 4: Confirm the amount is correct.
Step 5: Click ‘OK’ to reconcile.
This automatically creates and links the corresponding transaction in both accounts for accurate record-keeping.
How to Set Bank Rules in Xero for Faster Reconciliation
Bank Rules in Xero let you automate how specific transactions are categorised and reconciled. They’re particularly useful for recurring expenses or income such as rent, utility bills, subscriptions, or regular bank fees. Once a rule is created, Xero will apply it automatically whenever matching conditions are met, saving time and improving accuracy.
7 Steps to Create a Bank Rule:
Step 1: Go to Accounting, choose Bank accounts, then select the relevant bank account.
Step 2: Click the Manage Bank Rules, then select Create Rule.
Step 3: Choose the type of rule to create:
Spend Money Rule – for expenses or outgoing payments
Receive Money Rule – for income or incoming payments
Transfer Money Rule – for internal transfers between your accounts
Step 4: Apply Rule To
Decide where this rule applies:
All bank accounts – for broad use
Specific account – to limit the rule to one bank account
Step 5: Set Conditions
Tell Xero when to apply the rule by setting conditions:
Choose fields like Payee, Description, or Reference
Match types like Contains, Is, or Starts with
Enter a keyword (e.g. “Spotify”, “Fuel”, “Office Rent”)
Tip: Use common words found in your bank feed to trigger the rule reliably.
Step 6: Define the Transaction
This is where you set how the transaction should be recorded:
Contact – Supplier or customer name (e.g. “BP”, “Google”)
Description – What the transaction is for (“Monthly Fuel”)
Account Code – Choose the correct ledger account (e.g. Motor Vehicle Expenses)
Tax Rate – GST or other applicable rate
Tracking (Optional) – Allocate to a department, project, or location
You can split the amount across multiple lines if needed (e.g. 50% Rent, 50% Utilities).
Step 7: Click Save. Once you've created a Bank Rule, Xero will automatically apply it to any new bank transactions that meet the rule's conditions.
Using Cash Coding for Faster Reconciliation
Cash Coding is perfect for quickly processing large volumes of similar bank transactions, such as fuel, utilities, subscriptions, or supplier payments. It lets you assign account codes, tax rates, and tracking categories in bulk, saving time and reducing manual entry errors.
6 Steps to Use Cash Coding in Xero:
Step 1: Go to Accounting, choose Bank accounts and select the bank account you want to reconcile.
Step 2: Click Reconcile Accounts to open the bank reconciliation screen.
Step 3: At the top of the screen, click the Cash Coding tab.
Step 4: For each transaction listed:
Enter the Who (contact name, if applicable).
Select the correct Account code (e.g., 426 – Motor Vehicle Expenses).
Choose the appropriate Tax Rate (e.g., 15% GST on Expenses).
Add a brief Description (e.g., “October Fuel - BP”).
Step 5: Use the checkboxes to select multiple transactions if they share the same details.
Step 6: Once reviewed, click Save & Reconcile Selected to process them in bulk.
If a bank rule applies to any of these transactions:
Xero will pre-fill the fields based on the rule:
Contact
Description
Account Code
Tax Rate
(Optional) Tracking categories
A light green highlight usually appears to show that a rule has been applied.
You still have the option to edit any fields before saving, but in many cases, you can simply review and click "Save & Reconcile Selected" to process them in bulk.
Tip 1: Use keyboard shortcuts (Tab, Enter) to speed up data entry across rows.
Tip 2: Cash Coding is best suited for cash-basis accounting. It’s not recommended for accrual-basis accounting where invoices and bills need to be matched to payments.
Why Use Bank Rules with Cash Coding?
Saves time – You don’t have to enter details line by line.
Reduces errors – Rules apply consistent coding and tax treatment.
Improves accuracy – Recurring transactions (e.g. software subscriptions, utility bills) are handled the same way every time.
Speeds up bulk processing – You can reconcile dozens of transactions in seconds.
Viewing and Exporting Bank Reconciliation Reports
Use this report to review completed reconciliations and keep records for auditing or internal review.
Steps to View and Export a Reconciliation Report:
Step 1: Go to Accounting, choose Bank accounts.
Step 2: Find the relevant bank account and click Manage Account next to it.
Step 3: Select Reconciliation Report from the dropdown menu.
Step 4: Choose the date range or statement lines you want to report on and click Update to generate the report.
Step 5: To export the report, click: – PDF to save as a printable file, or – Export → Excel to work with the data in a spreadsheet.
Tip: Save a copy of the report monthly or quarterly for your accountant or audit trail.
Common Mistakes and How to Avoid Them
Mistake | How to Fix It |
Duplicate bank statement uploads | Delete the duplicate file under Bank Statements → Manage Account → Statement Import History. |
Incorrect date range or currency | Check the imported file format and bank account settings. |
Missing transactions in Xero | Manually create a Spend/Receive Money transaction. |
Unmatched lines | Use Find & Match or refer to Troubleshooting Unmatched Transactions in Xero. |
Old outstanding cheques or deposits | Adjust opening balances or record as manual journals if confirmed cleared. |
Frequently Asked Questions (FAQs) about Bank Reconciliation in Xero
Q: How often should I reconcile my bank transactions in Xero?
A: Ideally weekly, or even daily if you have high transaction volumes. This keeps your finances accurate and up to date.
Q: Can I undo a reconciliation if I make a mistake?
A: Yes. You can go to the bank account and find the reconciled transaction, then click “Remove & Redo” to correct it.
Q: Why is Xero not suggesting any matches?
A: This can happen if the invoice/bill hasn’t been entered in Xero, the amounts don’t match, or the dates are significantly different. Use “Find & Match” to search manually or create a new transaction.
Q: What’s the difference between “Match” and “Create”?
A: “Match” connects a bank line to an existing transaction in Xero (like an invoice or bill). “Create” is used to manually enter a new transaction if it doesn't already exist.
Q: Can I reconcile part of a payment?
A: Yes. Use the “Split” feature to allocate a payment across multiple invoices or partial payments.
Q: What’s the best way to handle recurring transactions like subscriptions or loan payments?
A: Set up Bank Rules to automate coding and reconciliation for recurring transactions.
Q: Do I need to reconcile credit card or PayPal accounts too?
A: Yes. Any account linked in Xero (including credit cards, PayPal, Stripe, etc.) should be reconciled regularly to ensure accuracy.
Q: Can I export reconciliation reports for my accountant or auditor?
A: Absolutely. You can generate and export reconciliation reports in PDF or Excel format.
9 Tips for Smoother Bank Reconciliation in Xero
Tip | Elaboration |
Reconcile frequently | Ideally, reconcile weekly or even daily. Regular reconciliation helps you catch errors early and keeps your records accurate. |
Use bank feeds | Connect your bank account to Xero for automatic transaction imports. This reduces manual data entry and speeds up reconciliation. |
Name your rules clearly | When setting up bank rules, use descriptive names to easily identify their purpose later. |
Take advantage of Cash Coding | For high volumes of similar transactions, use the Cash Coding tab to reconcile faster and more accurately. |
Split payments correctly | Use the “Split” feature when a single bank transaction covers multiple invoices or expense lines. |
Review suggested matches carefully | Don’t click “OK” blindly. Always confirm that the suggested transaction matches the bank line correctly. |
Regularly review unreconciled items | Go through old or unmatched transactions monthly to resolve discrepancies and maintain a clean ledger. |
Set user permissions | Limit who can create or approve reconciliations to avoid accidental errors or unauthorised changes. |
Consult your accountant | For complex transactions or one-off adjustments (e.g. loans, asset purchases), ask your accountant how to best record them. |
Conclusion
Reconciling your bank transactions regularly in Xero is a foundational step in maintaining accurate, up-to-date financial records. Whether you're matching invoices, creating new transactions, or using bank rules to automate the process, Xero gives you the tools to make reconciliation efficient and audit-friendly.
By using features like Cash Coding, Bank Rules, and Reconciliation Reports, and avoiding common pitfalls. You can save time, reduce errors, and ensure your business stays financially on track.