If you’ve found your way here from our blog Problems reconciling Xero? – click here to return to that article.
This ‘sub-blog’ explains the line items under the heading “Outstanding Receipts” or “Outstanding Payments” when running your bank reconciliation report. If you see transactions under these headings, one of three things has (not) happened.
▶ Transfers between bank accounts not recorded correctly
▶ Not matching a Spend Money or Receive Money transaction against an invoice in Xero
▶ You recorded the money transaction directly from the invoice/bill
At the end of this article, there are instructions on how to fix the problem. You may like to start with the fix though, then follow our instructions for the correct treatment.
Here, you’ve likely recorded the transaction as a ‘New Spend / Receive Money’ from your dashboard, or used the ‘Create’ tab when reconciling.
The correct method is to record it as a ‘New Transfer Money’, or use the ‘Transfer’ tab.
FROM YOUR DASHBOARD
FROM YOUR BANK RECONCILIATION SCREEN
In both situations, Xero will ask you to select the bank account on the other side of the transfer.
When you reconcile the other bank account, it will come up as a green suggested match option. If you are transferring to a personal account that is not in Xero, then you code it to drawings rather than transfer.
For the transfer option to work correctly, there must always be an in and an out in the bank accounts on the Xero dashboard.
You may see this if you use Xero’s invoicing capability to send invoices to customers and/or record bills from your suppliers.
When you enter an invoice or bill, Xero will record that as income or an expense in your profit and loss account. Because it hasn’t been paid yet, you’ll also have a debtor or a creditor in your balance sheet.
When reconciling your bank account, you need to tell Xero that it’s a payment for an invoice or bill already entered. Click on the ‘Match’ tab, and Xero will come up with some suggested invoices. Select the correct one and hit ‘OK’.
You may find that a bank transaction doesn’t exactly match the amount on an invoice or bill. If multiple invoices may have been paid at the same time, use the ‘Find & Match’ button to select more than one invoice. Where only part of the invoice or bill has been paid, follow Xero’s instructions here to record the split payment – it’s easier than you think!
If you don’t match the invoice or bill when reconciling, and instead record it as a Spend/Receive Money transaction, this will happen:
- Xero doesn’t know that the invoice or bill has been paid – it remains as a debtor or creditor; and
- Xero records it as a sale or expense, so it’s double-counted – once when you entered the invoice/bill, and again when recording it as Spend/Receive Money
We see some businesses recording the payment directly in the invoice itself (to change the debtor or creditor balances) without the money actually being received or paid.
There are situations where (part of) the invoice is no longer payable:
- A discount was received after the invoice was issued
- The goods supplied are damaged
- The customer returns some items
Once you’ve created an invoice or a bill, there’s almost no reason for you to do anything further in the invoice itself. Please record payments only when reconciling.
‘Remove and Redo’ is your friend!
Don’t worry – it doesn’t delete the transaction in the bank account! ‘Remove and Redo’ simply puts the entry back into your unreconciled items.