The screen you will use
Open the Reconcile tab for an account. On the left are statement lines from your bank feed or an import. On the right, Xero shows suggested matches and options to create or find. A green OK button appears when Xero is confident that a line matches an existing invoice, bill or spend money entry. Check the amount and the date, not just the colour.
Match, create or transfer
If the transaction already exists, such as a customer payment on an invoice, choose Match. If it does not, choose Create, then enter who it was from or to, the account and the tax rate. If it is a movement between your own accounts, use Transfer so it does not count as income or expense. Many errors begin with a transfer treated as a normal expense.
Group several payments into one deposit
When the bank deposit contains several customer payments, use the option to combine them. Select the invoices that were paid, then match them with the single statement line. For card processors, add the fee as a separate line so that the net deposit equals the statement. This keeps receivables accurate and fees visible.
Bank rules
Bank rules in Xero can apply when a statement line has certain text, amount or payee. They may create spend money, receive money or transfer entries. Start with only the repeated items you are sure about, such as monthly software or bank fees. Review the results during the first cycles, and set conditions tightly, because a loose rule categorizes unrelated transactions.
Finish and check
When the Reconcile screen shows no unreconciled lines, compare the Statement Balance with the real statement balance on the last date. If there is a difference, look for lines with the wrong date, duplicates from an import that overlapped with the feed, or a transaction entered manually before the line arrived. Run the Bank Reconciliation Summary report for the statement date to see any outstanding items.
Aim to reconcile at least weekly. Smaller batches are easier to explain than a full quarter at once, and they let you catch suspicious charges while you can still dispute them.
Handling foreign currency and fees
If you hold an account in another currency, Xero converts using the rate on the transaction date, and small differences appear as gains or losses. Bank fees on a statement line can be split off in the Create tab, so the main payment and the fee are recorded with separate accounts. Keep an eye on the currency gains account to make sure it only holds genuine movements.
Common questions
What does an unreconciled item in the report mean?
It is a transaction in Xero that has not yet been matched to a statement line, such as an uncleared cheque.
Can I undo a wrong match?
Yes. Use the Account Transactions view to unreconcile the line, then match again.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.