Using bank rules in Xero is a great way to reduce the amount of manual work you need to do to reconcile your bank accounts. In this tutorial, we will create a bank rule in Xero’s demo company.
To get to the right area of Xero, go to Accounting → Bank accounts from the main menu.
Next, click on the Reconcile 28 Items button for the main business bank account.
Here you can see that some of the bank statement lines are ready to be reconciled as they match an invoice, bill or bank rule. An example of a line that matches an existing bank rule is the $15.50 transaction for 7-Eleven.
Let’s pick a bank statement line that has not been matched to anything automatically and create a bank rule for it. For this tutorial, let’s create a bank rule for the $15.75 transaction for the Cooper St Bakery. To get started, locate the transaction in the bank feed and click on Create Rule. As this transaction is for money we have spent, choose Create spend money rule from the drop-down box.
In the next screen, we need to tell Xero which transactions the rule should automatically apply to when they enter our bank feed. Once we have set up the particulars of the bank rule and saved it, Xero will apply the rule to any bank transactions that match. Let’s go through each of the options on the Spend Money Rule screen.
This is the most important part of the bank rule’s setting as it determines which transactions the rule will apply to. For this exercise, we want the bank rule to apply to any spend money transactions that appear for the Cooper St Bakery, no matter what. To do this:
- Choose All for the setting When money spent on the bank statement matches XXX of the following conditions….
- Leave the setting as is for Payee.
- Remove the line for Description as it is not required.
This tells Xero to apply this rule to any transactions that have a Payee of Cooper St Bakery.
Here you can control which Contact in Xero to allocate each transaction to that uses this bank rule. For this tutorial, we will choose the Payee from the bank from the drop-down box.
Allocate Fixed Values
This setting is only used if you want to allocate a fixed amount to a particular general ledger account. We do not want to do this so we will leave this setting untouched.
Allocate The Remainder
In this section, we will tell Xero which general ledger account to allocate the transaction to. If you like, you can allocate a percentage of the transaction to a number of general ledger accounts instead of allocating all of it to one account. For this exercise, we will allocate the entire value of the transaction to one general ledger account. To do this, complete the fields as follows:
- Description: type in Lunch.
- Account: choose 420 – Entertainment.
- Tax Rate: this should automatically populate.
- Region: leave this blank.
- Percent: leave this as 100%.
The reference is a unique identifier for the transaction. If you click on the drop-down box you will see that there are a number of places the reference can come from. For this exercise, let’s choose From the reference.
Which Bank Accounts
This setting lets you choose which bank accounts will enforce this bank rule. As we want our bank rule to apply to the whole company, select all bank accounts from the drop-down box.
Bank Rule Title
The final task we have to do is to give the bank rule a name. Xero has automatically allocated the name Cooper St Bakery to the rule for us. As that name is suitable, let’s leave it as is and click on the Save button at the bottom of the screen.
Does the Bank Rule Work?
After you have saved the bank rule, you will be taken back to the bank account reconciliation page. Here, you will be able to check if the rule is working. If you locate the $15.75 Copper St Bakery transaction we used to create the bank rule, you should see that the transaction has been automatically matched to the Cooper St Bakery rule.
Also, if you scroll down further, you should find another Cooper St Bakery transaction for $11.90. Here you should see that the same Cooper St Bakery bank rule has been applied to this transaction.
From now on, Xero will match the bank rule with any appropriate transactions that appear in any of the demo company’s bank accounts. As you can see, this is a great way of speeding up the bank reconciliation process.
Congratulations! You have now created a bank rule in Xero and checked that it applied correctly to two transactions. You can now create any number of bank rules for your bank accounts.
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