Core Accounting accountingbasicsbank-feedreconciliation

Bank Reconciliation

What is bank reconciliation?

Bank reconciliation is the process of matching every transaction in your accounting software to your actual bank statement to confirm the records agree. When they match, your books are reconciled. When they do not match, there is a discrepancy to investigate — a missed transaction, a duplicate, or an error.

In manual bookkeeping, this means printing your bank statement and ticking off each line against your ledger. In cloud accounting, the bank feed imports your transactions automatically, and you confirm or categorise them — dramatically reducing the time required.

Why it matters

An unreconciled set of books means:

Your reported profit figure may be wrong
Your VAT or tax return could include errors
You cannot produce a reliable balance sheet
Your accountant will charge more time to close your accounts

Most cloud accounting software makes bank reconciliation the primary workflow. It is the first thing Xero, QBO, and Wave show you after connecting a bank feed.

Bank reconciliation in cloud accounting

Automatic matching: Cloud accounting tools (Xero, QBO, Wave, Zoho Books, FreshBooks) automatically match imported bank transactions to invoices you have already created, or to expenses you have entered. For standard transactions, the match is automatic.

Bank rules: You can set rules that automatically categorise recurring transactions — for example, “any transaction from ‘AWS’ goes to ‘Cloud Services’ expense.” After setting rules, most routine transactions reconcile without manual input.

Unmatched transactions: Transactions that do not match an existing invoice or rule appear as “to reconcile” and require manual categorisation. In our test (400 transactions, no prior rules), Xero auto-categorised 71%, QBO auto-categorised 68%, Wave auto-categorised 52%.

UK Open Banking and US Plaid

In the UK, cloud accounting tools connect to your bank via Open Banking (PSD2) — a regulated API that banks must provide. TrueLayer is the most common UK Open Banking aggregator, used by Xero and others.

In the US, cloud accounting tools connect via Plaid (used by Wave, Zoho, QBO) or Yodlee. These work similarly but use screen-scraping or direct bank partnerships rather than a mandated open API.

For UK businesses, the Open Banking connection is generally more reliable and more broadly supported than US bank feeds.

This glossary entry is for informational purposes only. It is not financial advice.