What Is Bank Reconciliation?

Bank reconciliation is the process of matching the transactions in your accounting software against your bank statement to make sure nothing has been missed, duplicated, or recorded incorrectly. In Xero, this is one of the most important tasks you’ll do regularly — it keeps your financial records accurate and your cash flow reporting reliable.

Setting Up Bank Feeds

Before you can reconcile, you need bank transactions flowing into Xero. Most UK banks support automatic bank feeds, which import your transactions daily. To set one up:

  1. Go to Accounting > Bank Accounts and click Add Bank Account.
  2. Search for your bank and follow the prompts to authorise the connection.
  3. Once connected, Xero will start importing transactions automatically.

If your bank doesn’t support automatic feeds, you can manually import statements as CSV or OFX files.

What Are the 5 Steps of Bank Reconciliation?

  1. Open the reconciliation screen — from your dashboard, click on the bank account you want to reconcile. The number of items waiting is shown on the tile.
  2. Review suggested matches — Xero automatically matches imported bank statement lines against invoices, bills, and other transactions you’ve already recorded. Check each suggestion is correct.
  3. Create new transactions — for bank statement lines that don’t match anything, create a new ‘Spend Money’ or ‘Receive Money’ transaction directly from the reconciliation screen.
  4. Confirm and reconcile — once a statement line is matched or a new transaction is created, click OK to mark it as reconciled.
  5. Check your closing balance — after reconciling all items, compare the balance in Xero with your actual bank balance. If they match, you’re done. If not, investigate the difference.

How to Reconcile All Transactions in Xero

To work through your unreconciled items efficiently:

  • Use bank rules — if you have recurring transactions (e.g. rent, subscriptions, regular supplier payments), set up bank rules to automatically categorise them. Go to your bank account, click the cog icon, and select Bank Rules.
  • Reconcile in batches — rather than letting statement lines build up, reconcile weekly or even daily. Small batches are faster and less error-prone than tackling months of transactions at once.
  • Use the Xero mobile app — you can reconcile transactions on the go, which is especially useful for small business owners who want to stay on top of their accounts between meetings.

Handling Transfers Between Accounts

When you transfer money between your own bank accounts, you need to record it as a transfer rather than income or expenditure. During reconciliation, click Transfer on the statement line and select the other account. This ensures your reports don’t inflate your income or expenses.

Common Reconciliation Problems

  • Balance doesn’t match — check for transactions entered with the wrong date, duplicate entries, or items recorded in the wrong bank account.
  • Missing transactions — your bank feed may have a short delay. If a transaction hasn’t appeared yet, wait 24 hours or manually import a recent statement.
  • Duplicate statement lines — if you’ve both connected a bank feed and manually imported a statement for the same period, you may have duplicates. Delete the extras from the bank statement screen.

Running a Bank Reconciliation Report

To review your reconciliation history, go to Accounting > Reports > Bank Reconciliation Summary. This report shows the reconciled balance, unreconciled items, and any discrepancies for each bank account — useful for month-end reviews or when your accountant needs to verify your records.

Why Regular Reconciliation Matters

Reconciling your bank account regularly ensures your financial data stays accurate for VAT returns, tax reporting, and cash flow forecasting. It also helps you spot unauthorised transactions or bank errors early, before they become bigger problems. Most accountants recommend reconciling at least weekly.

Need help setting up bank feeds or getting on top of your reconciliation? Fill out the contact form below and a JacRox team member will be in touch.

Once your bank reconciliation is running smoothly, you might want to explore accounts payable and receivable in Xero, creating professional invoices in Xero, and the Xero audit trail. Our guide on tracking expenses in Xero is another useful next step.

Want a step-by-step walkthrough? Try our Xero bank reconciliation training article.