185 ⎸ Correcting Bank Balances in Xero

In this video I’m demonstrating how to adjust bank balances when you’re cleaning up a Xero bank reconciliation. We’ll cover:

• spend money transactions
• receive money transactions
• manually reconciling transactions
• conversion balances (adjusting the beginning balance)

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Transcript

Serena: 0:55

In this video, I'm going to show you how to adjust a bank balance in Xero to equal what you actually need the reconciliation for . And this is done in instances where, maybe you're carrying in from a migration and all the reconciliations have been done in QuickBooks Online. So you need to start with a correct balance. I wouldn't recommend using this method for a brand new Xero account, because you would actually go to, the conversion balances to adjust this. but in this instance, If you imported a bunch of transactions and maybe in the old file of QuickBooks, things were continuing to be done and you have like a gap, then you could do it this way. But in general, my recommendation is to actually adjust the conversion balances in Xero when you need to adjust the beginning bank balances because that should fix things. But this is what you would do otherwise in a situation where Adjusting conversion balances won't fix that problem. So you'll go to the bank account in question. So I'm going to go over to accounting and bank accounts. And let's say it's this checking account that we are going to be working on. And the balance in Xero right now is 5, 000. a negative 5, 000. We have a statement balance. and you have an actual PDF bank statement and you know what the ending book balance should be. so you're going to take the difference of what's in Xero with what the balance should be. And depending on the direction, you'll need to enter a specific transaction because you cannot post a journal entry to a bank account in Xero. So you'll click into the bank account. And here on the account transactions tab, you will enter a new transaction. And depending on the direction of that amount, you will either enter a spend money or a receive money. So if you need to increase the balance of the bank account, you'll use receive money. If you need to decrease the balance of Xero of the bank account, you'll use a spend money. let's say for example purposes that we want to bring this balance to zero, that's highly unlikely. But in order to bring this balance to zero, right now it's negative. So we would actually need to be doing a receive money and the from is probably I would you can name things however you want and in a situation like this I would probably create a contact called opening adjustment and then you want to make sure you're dating it correctly so if we're trying to correct a balance as of December 31st we're going to do this. You do want to enter a description as much as you can so that anyone looking at this transaction later on will understand what was going on. And you can also attach things. So if those bank accounts were reconciled in QuickBooks, you'll want to attach the reconciliation and any proof that you Actually do need the balance to be corrected to this. So, , I'm just going to leave a note. Thanks, Reconciled and QuickBooks. We're going to do a quantity of one. And if we're bringing this to zero, which is not likely, you're probably going to have an amount that you're going to bring it to., you're going to want to make sure that you calculate the correct amount. So I'm just going to increase the balance by 5, 092. 83 to bring it to zero. And the account that we're going to use, is probably going to be an equity account. If you're adjusting something from prior year in a situation like this, I would probably adjust an equity account like retained earnings. If you're doing this exercise because you You know, maybe you missed a couple deposits and you weren't able to find them, but you want to start fresh. you would want to enter this to an income account or whatever it actually should have been to. So, but for this purpose, I'm going to, I'm going to book it to retained earnings. And then you just click save, add all your attachments and everything. There's one more step after that. So now we have this adjustment, but it's not reconciled. So we're going to click on it. And since this didn't come through a bank feed or anything, and we don't have anything to match it to, we have to manually reconcile it. So we go over here to options and click mark as reconciled. You usually get this little, um, notification that you should not reconcile unless, you cannot import the data from the bank. And so, yes, we agree with that. We're going to mark it as reconciled. So now, when we go back to The checking account, the balance in Xero is zero. So now we've corrected it. So I hope this helps you understand how the Xero bank accounts kind of function. And like I said, this is not a strategy I would normally use unless you're in a cleanup situation and you really just need to correct the balances to be able to move forward. If you have done a fresh start in Xero, and you've brought in your bank feeds, and your bank account balance is not correct. Where you actually want to go to correct this is to go to Advanced, And down here to conversion balances. And you're going to adjust this balance based on what the actual beginning balance was looking at, you know, the year end or the bank statement or whatever. So if your balances are off on the bank account, this is the first place I would go to make sure this is correct. And if you, and then if you know that you're missing some transactions that weren't imported or whatever, then use that other method that I just showed you. And it's always best practices to lock the balances once you've corrected all of your conversion balances here so no changes can be made. All right, that's it for now. I hope this video was helpful.