--- title: "Xero Bank Reconciliation: How to Do It Right | MCC Solutions" description: "Reconcile in Xero step by step, handle outstanding checks and deposits in transit, and fix a difference. Worked example included." url: "https://mcc-solutionsnj.com/bookkeeping/guides/xero-bank-reconciliation-basics" --- Bookkeeping guide · Updated October 12, 2026 # How Bank Reconciliation Works in Xero Xero reconciliation is built around a simple idea: each line from your bank statement should be matched to something in your books. When every line is matched, the bank balance in Xero agrees with the real one. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** In Xero, open the Reconcile tab for an account and match each bank statement line to an invoice, bill or spend money entry. A green OK button appears when Xero is confident of a match; check the amount and details before accepting. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Closing entries and retained earnings](/bookkeeping/guides/closing-entries-and-retained-earnings) · [Void vs delete a transaction](/bookkeeping/guides/voiding-vs-deleting-transactions) · [NJ 1099 contractor rule (ABC test)](/bookkeeping/guides/nj-independent-contractor-rule-abc-test-2026) **Free tools:** [Credit card fee calculator](/bookkeeping/credit-card-fee-calculator) · [How many sales do I need to break even?](/bookkeeping/break-even-calculator) Prefer a file to work in? The [Month-End Close Workbook](/toolkits/month-end-close-workbook) runs the whole close in Excel and tells you when a reconciliation does not tie. [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## 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. ## Worked example with numbers The bank statement balance on June 30 is $12,480. In Xero, after matching everything that cleared, the reconciled balance shows $12,205. Two items explain the gap: a $400 check you wrote and mailed that has not cleared, and a $125 deposit made on the 30th that the bank posts on July 2. Start with the statement $12,480, subtract the outstanding check $400 and add the deposit in transit $125: $12,480 - $400 + $125 = $12,205. The two sides agree. If instead you were off by $18, look for a transposed number such as $81 entered as $63, or a duplicated feed line. ## Mistakes that cost money Accepting bank feed suggestions without reading them posts transactions to the wrong accounts. Entering a payment by hand when the feed also brings it in creates duplicates. Reconciling to a date other than the statement date makes balances impossible to compare. Using the reconcile screen to recategorize everything instead of reviewing first slows the close. ## Check your work The reconciliation report should show the statement balance, the book balance, and a short list of outstanding items. If the list includes items older than a month or two, investigate them. ## 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. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [### Xero Bookkeeping and reconciliation in Xero for New Jersey small businesses, including cleanup and moving from spreadsheets or another program. Xero →](/bookkeeping/software/xero) More guides - [Xero Tracking Categories: Setup and Reporting](/bookkeeping/guides/xero-tracking-categories) - [Wave Accounting: Setup Steps and Its Limits](/bookkeeping/guides/wave-accounting-setup-and-limits) - [FreshBooks Time Tracking, Projects and Billing](/bookkeeping/guides/freshbooks-time-tracking-and-projects) - [Zoho Books Workflow Rules and Automation](/bookkeeping/guides/zoho-books-workflow-automation) Free tool - [Bookkeeping health check](/bookkeeping/health-check) [All guides](/bookkeeping/guides) Reach small business owners, freelancers and bookkeepers who read this guide: [advertise here](/advertise#bookkeeping). Do it yourself ### Chart of Accounts and QuickBooks Import Pack Start your books with an account list built for your type of business, instead of the generic default, and compare it with the accounts you already have. [See what's inside ($24)](/toolkits/chart-of-accounts-quickbooks-import-pack)14-day full refund Course: [Small Business Bookkeeping Basics](/courses/small-business-bookkeeping-basics) ($49) covers chart of accounts, reconciliations, the monthly close, payroll and 1099 basics for owners. It is training with a certificate of completion, not a credential. [![Cover of Bookkeeping Fundamentals (ebook) by Matthew Colt](/img/toolkits/bookkeeping-fundamentals-ebook/cover.webp)](/toolkits/bookkeeping-fundamentals-ebook) From the bookshelf ### Bookkeeping Fundamentals A college-level bookkeeping course, without the tuition. By Matthew Colt, $9.99 as an ebook (EPUB and PDF). [See the book](/toolkits/bookkeeping-fundamentals-ebook) [Read the first pages free](/toolkits/bookkeeping-fundamentals-ebook#free-starter) Reviewed by a person ### Books Health Review Send us one period of reports from QuickBooks, Xero or Excel. A person reads them and emails a written list of what to fix, in order. [See what is included ($129)](/bookkeeping/books-health-review) Tallyfinch ### Books you keep on your own computer Tallyfinch does invoices, bills, bank import, reconciliation and the main reports, in a file you own. $99 once, then $5 a month for updates; the app keeps working if you stop the plan. It does not do payroll or sales tax filing. The free download records up to 60 entries. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) [Download it free](/tools/pro/trial/mccBooks) [Compare the three apps](/software) ## Rather have us keep the books? Ask for a quote. [Get a Quote](/bookkeeping/#interest)[Call (908) 444-6373](tel:+19084446373)