Xero is a cloud-based Accounting Software for Small and Medium sized businesses and has over 1 million subscribers worldwide. It also uses machine learning and automation to help save you time and money and one of the features to be discussed is the bank reconciliation automation.

Before stepping into the process of automating bank reconciliations, it should be noted that Xero allows you to import the bank statement via a direct feed safely using your read only internet banking access and all your statement lines will be imported into Xero without uploading it onto a csv file.

Once all statement items are uploaded, all of the invoices and purchases already entered will automatically match with these statement lines if they have been entered. Xero then automatically matches the statement lines to these transactions, once you select “OK” it then posts a bank journal in the background.

Xero Bank Automation Rules

The bank automation rules which can be set up easily are used for regular and frequent bank transactions, (e.g. parking, subscriptions or train travel). Setting up the bank automation rules can save you up to 20-50% of your time in the bank reconciliation process. It also ensures consistency because the same rules are applied each month, so the transactions are always treated in the same way in your accounting system. If you have multiple bank accounts and credit cards, you can also create one rule within Xero to be applied across several bank accounts and credit cards.

How to Create Bank Automation Rules

You can create bank rules from the bank account page, from the bank reconciliation itself and also from the cash coding page in the bank statement. In all cases, the set up of the bank rule is identical – you just need to select whether it is a spend money, receive money or transfer of money transaction first. The create bank rule screen is split into seven sections, with section one specifying the conditions of when the rule should be applied. You must have at least one condition for the bank rule but you can add more if needed. The first line states that the rule will apply either if ‘all’ or ‘any’ of the conditions apply. This is an important criterion as ‘all’ will mean that the rule is applied if all the conditions are matched, whereas ‘any’ means that the rule is implemented even if only one of the conditions are met, so it is less restrictive.

Next, by selecting ‘Any text field’ from the first drop-down list, Xero will search the Payee, Description, Reference and Analysis Code fields on the bank statement line and apply the rule if one of the fields meets the condition. The next drop down has four options as follows:

  1. All – the rule is applied if all the conditions entered are met
  2. Any – the rule will be applied if any of the conditions are met
  3. Contains – the rule suggests statement lines that include the details entered but do not have to be a specific match, so is less restrictive.
  4. Equals – the rule is applied if the bank statement lines match exactly

The next section in the form relates to the supplier name and this can be entered during the reconciliation, the payee or a new or existing contact. If you want to group all common items together rather than have a new supplier for each entry, you can create a new contact to group them. For example, you could create a new contact called ‘train travel’. In the third section, you will then allocate a fixed value line item and is commonly left blank. Section four relates to the allocation of the amount to different nominal codes. Here you must enter a description, account VAT rate and the percentage of the total value to be allocated to that account. Next, set the reference and then on section six you can set the target bank account that the rule should be applied to. It then gives you the option to apply it to more than one account. This saves you having to set the rule up for each individual account.

The final step is to give the bank rule a title, will title will appear everytime Xero suggest the rule during the bank reconciliation process. All you have to do in the bank reconciliation screen is click ‘Ok’ to confirm and the item is then reconciled with a bank journal being posted in the background.

Summary

Bank rules are a time saving tool that are well worth setting up and can save you up to 20%-50% of your time in the bank reconcilation process. Setting up the rules and the conditions is a one-time task which will ultimately make the bank reconciliation process a lot more smoother and faster in the long run.

If you would like to know more about Xero or would like to take up our discounted implementation offer, submit your contact details here and one of our consultants will be in touch.

DISCLAIMER

This article is written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of its contents.

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