Bank Reconciliation Basics

The green tick in Xero feels like certainty. Every bank line matched, nothing left in the queue — surely the books are right. Not necessarily. Matching bank feed lines is only part of reconciliation, and the missing part is where the real errors hide.

What reconciliation actually means

A true bank reconciliation answers a simple question: does the bank balance in your accounting file equal the balance the bank says you have, with every difference explained? The bank feed screen in Xero or MYOB is really a coding tool — it helps you allocate each line. The reconciliation is the separate step of checking the resulting balance against your actual bank statement.

How it works in practice

• Match before you create. When money arrives, match it to the invoice already in the system. Creating a new "receive money" transaction instead double-counts the income and leaves the invoice showing as unpaid.
• Code the rest deliberately. Software suggests accounts based on past coding, so an early mistake gets replicated every time you accept the suggestion without reading it.
• Check the statement balance monthly. Open the actual bank statement — the PDF from the bank, not the feed — and confirm it matches the balance in your file on the same date. In Xero this is the bank reconciliation summary; in MYOB, the reconcile accounts screen.
• Explain every difference. Timing differences like un-presented payments are fine; unexplained gaps are not.

What we commonly see go wrong

• Bank feeds silently dropping transactions. Feed outages happen, and the software does not always warn you. The monthly statement check is what catches the gap.
• Duplicate feed lines after a bank change or feed migration, quietly doubling expenses.
• Accepting every suggested match at speed. The suggestions are guesses, not answers.
• An unreconciled suspense account growing all year, then landing on the accountant's desk at year end — where fixing it costs more than keeping it clean would have.

A worked example

As an illustration: a café owner reconciles the feed every morning and everything looks matched. At quarter end, the BAS looks oddly low. The monthly statement check reveals the feed dropped several days of takings during a bank outage — sales that never reached the file. Because the coding screen showed nothing waiting, nothing looked wrong. The statement balance comparison found it straight away.

How often should you reconcile?

Weekly suits most small businesses; daily suits high-volume retail and hospitality. The statement-balance check should happen monthly regardless, and always before a BAS is lodged. Reconciling just before lodgement, from a cold start, is where mistakes and missed GST credits creep in.

When to get help

If the file has unexplained differences you cannot trace, a suspense account that keeps growing, or months of unmatched lines, it is worth getting the reconciliation rebuilt properly once rather than lodging a BAS on top of it. We see this often, and it is far easier to fix before lodgement than after.

If Xero shows no unreconciled bank lines, is my reconciliation done?

Not quite. That shows every imported line has been coded, but it does not prove the feed imported everything. Compare the balance in Xero to your actual bank statement at month end to close the loop.

What should I do with a bank line I cannot identify?

Park it in a suspense or query account and follow it up promptly rather than guessing. Guessing trains the software to repeat the mistake on every similar line.

How often should a small business reconcile?

Weekly works for most businesses, daily for high transaction volumes, and a full statement-balance check monthly and before every BAS lodgement.