Bank reconciliation protects your business from fraud, accounting errors, and mismanaged funds. At a minimum, it’s best to reconcile your bank and bookkeeping records daily, weekly, or monthly to catch errors immediately. It can be a tedious process. Nonetheless, it’s critical to your financial health.
Good thing, Xero accounting software can make this process easier for you. In Xero, this is done on the Reconcile tab, by matching bank statement lines from your bank account on the left against transactions in Xero on the right. Let’s take a look at how to do Bank Reconciliation in Xero Software.
1. Reasons for preparing the Bank Reconciliation Statement
Bank reconciliation is the process to confirm that all the transactions in your bank accounts are recorded in your business accounting records. Bank Reconciliation Statement is prepared for knowing how much cash you really have available in your accounts, avoiding bounced/failed payments to suppliers, avoiding bank fees for insufficient funds, knowing if customer payments have actually come through and if any action is needed, Catching any bank errors.
The common causes of problems we see if Bank Reconciliation Statement is not prepared and i.e. Marking invoices and bills as paid on the invoice instead of through the bank reconciliation process, Bank feeds drop out, Recording transfers twice, etc.
2. Important Terms you need to know in the Bank Reconciliation Process
I. Statement Lines- Statement lines are the bank transactions imported from your bank account via a bank feed or they’re manually imported. When they’re in your online banking, they’re referred to as bank transactions, then when they’re imported into Xero we call them bank statement lines.
II. Transactions- Transactions are created in Xero. These could be invoices, bills, expense claims or cash transactions.
III. The aim of bank reconciliation in Xero is to match each statement line in the bank account to an existing transaction in Xero, or create a transaction during the reconciliation process.
IV. We recommend reconciling your bank accounts on a regular basis, to ensure your accounting records are up to date and to help find and correct any errors as soon as they occur.
3. How to Run a Bank Reconciliation Report in Xero Software?
I. On the right corner of the dashboard, there is 3 dots, click on that dots
II. Under ‘Reconcile’ tab, there is a 3rd option as ‘Reconciliation Report’
III. Then the tab of Bank Reconciliation Summary gets open, Select desired period for the Bank Reconciliation Report and after that click on ‘Update’ option.
IV. The Bank Reconciliation Report is ready to view.
4. Steps to search the differences in the Bank Reconciliation Statement
I. Reconcile all the items in the Bank Reconciliation- Make sure if the Reconciliation of all the items are done as on the current date for matching the Bank Balances. If it is not done then complete the same and generate the correct report.
II. Check the overview on the dashboard- There is an overview of differences shown related to the Bank Balances as per xero and as per bank statement. If there is no difference in both balances then both balances are of same amount and If there is a difference then the amount of difference has been shown on the dashboard. We need to search the differences and make the necessary changes in the Bank Reconciliation Statement.
III. Run the Bank Reconciliation Report and Investigate- For Example, a bill has been marked as paid but the money hasn’t come out of the bank yet. So, it begs the question – is this bill actually paid?
So, what is the take home here? Once you’ve finished your bookkeeping for the day, your balance in Xero should match your bank statement. If not – run the bank reconciliation report and start investigating why.
Xero is one of the best cloud software for businesses. If we know more about the same software, then we will able to match it up effectively with our business requirements. We need to know same information like the information contains in the same article, it helps us to keep our business accounts up-to-date and error-free. Also, it helps us to increase the returns of our business.