It's a common question we get here at Illumin8. So we thought we'd pop together a quick guide on how to actually run a bank reconciliation report in Xero. Easy peasy.
You log into Xero. Right there, on the front page you see your bank accounts. You might see a blue box with “reconcile X items” or you might see a green tick. If you do see the green tick, a confirmation that your bank reconciles, does the balance actually match the balance in your bank account? More importantly, can you actually trust Xero to give you an accurate snapshot of your cash situation?
One thing I really want to understand when working with clients is how they use Xero. What order do they press buttons, how do they keep track of their sales, how do they manage bills, and where do they look to see how much money they have in their bank. Recently, some of my clients who are hardcore Xero lovers have found their trust in the Xero balance wavering as the bank balance never seemed quite right..
Which is why we are here, the bank reconciliation report.
So why do a bank reconciliation?
- 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
And the common causes of problems we see...
- Marking invoices and bills as paid on the invoice instead of through the bank reconciliation process
- Bank feeds drop out
- Recording transfers twice
To make it really easy for you, here's a little scenario.
Paul the Plumber invoiced Mel from Mornington Myotherapy $500. A few days later Mel from Mornington Myotherapy emailed Paul the Plumber to let him know the dollarydoos had been sent.
Paul the Plumber went into the invoice in Xero and marked the invoice as paid into his bank account, and returned to his plumbing duties. It wasn’t until a few months later that Paul the Plumbers bookkeeper Brittany (of Brittanys Best Books bookkeeping fame) ran the bank reconciliation report that it was discovered that Mel from Mornington Myotherapy had made a mistake and didn’t actually pay Paul the Plumber… by then Mel from Mornington Myotherapy was in Mykonos sipping martinis.
How To Run A Bank Reconciliation Report
What the differences in the totals mean
Balance in Xero - The sum of all bank account transactions entered in a bank account dated today or in the past.
Total Outstanding Payments/Receipts - Transactions that were entered into Xero, but not yet reconciled.
Total Unreconciled Statement Lines - Transactions imported from your online bank account (at the report date) that are not yet reconciled (or possibly not yet entered) in Xero.
Statement Balance - The sum of all imported bank statements for a bank account in Xero. A difference displays if you run the report for the day the statement was imported, and the Statement balance and Balance in Xero are different.
Imported Statement Balance - Displays if an end balance has been imported for the date that the report has been run for.
1. Reconcile all items in the bank reconciliation
2. Check the overview on the dashboard
3. Get your Sherlock on. Run the bank reconciliation report and investigate.
In this 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.
If you're interested in learning more about how to better use Xero for your business, or wondering if cloud accounting is right for you, reach out today, we'd love to make a time to talk with you.