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QuickBooks Online Vs. Xero on Bank Recs

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Sep 27th 2016
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In this article, I’m going to delve into how Quickbooks Online and Xero go about bank reconciliation, dealing with bank feeds and verifying transactions. Overall, when you first start working with transactions, I believe Xero comes out ahead, but once you’ve done a few months of reconciliations, I feel the differences in speed between the two wouldn’t be significant enough to warrant a switch from one to the other.

However—and there is a big however—what would convince me to go with one system over the other is how the software works.

For example, back in the desktop days, this is where QuickBooks Desktop clearly won for me. In Canada, the big two were Sage and QuickBooks Desktop and I could never get comfortable with the workflow in Sage. It was too rigid for my liking, and not as intuitive and forgiving as QuickBooks Desktop.

In the early cloud accounting software days I also had my preferences, and QuickBooks Online was not my favorite piece of software to work with. More recently, however, I feel they’ve come a long way and the software is now a lot easier to use and has more functionality.

At first glance, I had reservations about working with Xero. But after actually using the system, I quickly became impressed and felt I understood the software.

Explaining QuickBooks Online and Xero’s Banking Pages

While both QuickBooks Online and Xero have Banking pages, they don’t work the same.

QuickBooks

In QuickBooks Online, you have the following tabs:

  • For Review: Imported bank transactions (whether via a bank feed or file upload) that have yet to be categorized and entered into the QuickBooks system (thus having no effect on your account balances/reports).
  • In QuickBooks: Imported bank transactions that have been categorized and entered into the QuickBooks system (thus having an effect on your account balances/reports).
  • Excluded: Imported bank transactions that have not been entered into the Quickbooks system (presumabley because they’re duplicate transactions).

Between all three tabs, you’ll find all your imported bank statement transactions.

Xero

In Xero, you have the following tabs:

  • Reconcile: Imported bank transactions (whether via a bank feed or file upload) that have yet to be be categorized and entered into the Xero system (thus having no effect on your account balances/reports). If matching transactions exist, they are shown in the right column. Likewise, if there are user-created bank rules or suggested previous entries, this will also show up in the right column.
  • Cash Coding: A spreadsheet-like view of the Reconcile tab, where you can easily sort and batch categorize transactions.
  • Bank Statements: A complete history of imported bank transactions, regardless of whether they’ve been matched to entered transactions (reconciled) or not, and whether they’ve been deleted or not.
  • Account Transactions: A complete history of entered transactions, regardless of whether they’ve been matched to imported transactions (reconciled) or not.

The Reconcile and Cash Coding tabs show you uncategorized (unreconciled) bank statement transactions, the banks statements tab shows you all bank statement transactions, and the Account Transactions tab shows you all transactions entered into Xero.

Differences

The two big differences between QuickBooks Online and Xero that stand out to me are that:

  1. The Reconcile tab in Xero gives you a clear look at what’s being imported vs. what’s in the system, since the left column shows bank statement transactions whereas the right column shows entered transactions.
  2. The Bank Statements and Account Transactions tab in Xero both give a complete history of their respective transactions (imported bank transactions and entered transactions). QuickBooks Online only shows bank statement transactions among its three tabs.

This means you don’t have to leave Xero’s Banking page to get your transactions sorted out, whereas with QuickBooks Online you have to go to the register (which is called Account History) to get a complete history of all transactions entered into QuickBooks.

Categorizing Transactions

Both QuickBooks Online and Xero work off the premise that you import bank statement transactions, whether via a bank feed or uploaded file. With those bank statement transactions, you then either add the transaction to your system, or match it to transactions that already exist in it. They both use system-generated rules to try and guess a transaction if they don’t find a match for an existing one, and they also both allow the user to create rules to pre-fill out transactions.

In general, they both work the same, but the execution differs.

QuickBooks

QuickBooks has its For Review tab that shows a single table view of all your uncategorized bank statement transactions.

If there’s a match, the transaction will be highlighted in green and give a few details of the matching transaction. If you click on the transaction, you can see a few more details, like the invoice ID for the matching transaction.

If there’s a single match to an existing transaction, it’ll show up as green, whereas if there are multiple matches, it’ll show up as grey.

If the system is suggesting an entry that is based on previous transactions you have entered or a rule you created, it’ll show up as green. If it’s guessing what the transaction might be categorized as, it’ll show up as black.

Essentially, QuickBooks Online is always guessing at the right answer, and tries to color code based on its level of confidence.

QuickBooks Online has a straightforward guide on how to categorize transactions, which I recommend taking a look at.

Xero

Xero has two tabs for reconciling transactions, the Reconciliation tab and the Cash Coding tab.

The Reconciliation tab divides the page into two columns, with the bank statement transactions on the left, and transactions entered into Xero on the right. If there are no transactions entered into Xero that seem to match the bank statement transactions, it’ll 1) be blank, or 2) Xero will suggest a transaction based on previous entries, or 3) Xero will suggest a transaction based on a user-created rule.

This is how Xero indicates the status of transactions:

  • If there’s a match, it’ll highlight the transaction in Xero in green.
  • If it’s a suggested entry based on a rule, it’ll make the transaction in Xero Blue and show the rule name (and you can click on the transaction to show more details).
  • If it’s a suggested entry based on a previous entry, it’ll pre-fill out the transaction form for you.
  • If there’s not suggested entry or match, it’ll leave the transaction form blank.

For the matches and suggested entries, you could go merrily on your way and click OK, OK, OK. For entries the system can’t figure out, you have to fill out the transaction form and then click OK.

The Cash Coding tab shows a spreadsheet-like view of all your transactions. If you have created rules, then it will show suggested entries (but it won’t show suggested entries based on previous transactions). This view lets you easily batch categorize transactions, and even batch apply rules.

Differences

Here, the major difference for me is that QuickBooks Online works off the premise that it always has the answer for you, whereas Xero is more conservative in its approach. With QuickBooks Online, you could quite easily batch accept all transactions, or simply keep on clicking on Add or Match. QuickBooks Online also has a Recognized button that only shows the transactions that are green, which have only a single match, or that are suggested based on previous entries.

Because Xero doesn’t suggest entries for transactions that it hasn’t seen before, it feels like you’re doing less correcting of mistakes in Xero than in QuickBooks Online. With Xero, it also feels like I’m more deliberately looking at and accepting the transactions, especially due to the way the transactions are displayed, with a clear separation of what’s in the bank statement and what’s been entered into the system.

Cash Coding is another obvious difference. Xero has a dedicated tab for this and QuickBooks Online does not. Despite QuickBooks Online not having a separate tab, it can actually do most of what Xero can, when it comes to batch categorizing transactions. However, QuickBooks Online won’t allow you to:

  • Batch categorize as many details, such as the description and reference (which Xero will)
  • Apply bank rules
  • Offer as many rows of data on the screen (this is not rows of data that you can view while scrolling, but rows of data you can see on a single page without scrolling)

While rules may seem the same in both QuickBooks Online and Xero, Xero offers a greater degree of control over what to look for in a transaction as well as how to categorize it.

Reconciliation and Verification

Reconciliation is a bit of a hard term to pin down in the online world. Usually what most software solutions call reconciliation is the processing of imported bank transactions, whether you’re categorizing them and creating new transactions, matching them to existing ones, or deleting them.

In the desktop world, reconciliation was matching your transactions in your accounting software to those in your bank statement.

Since online has enabled the easy import of bank statement transactions, the lines have gotten a bit blurred.

To be clear about what I’m addressing, I’ll go with the terminology of most online accounting software, for which reconciling means processing imported bank statement transactions. I’ll thus define verification as the process of ensuring that those entries and balances in your accounting software match those found in your bank statements (whether it be a paper or digital copy).

QuickBooks

Both QuickBooks Online and Xero have ways to verify transactions, but I believe QuickBooks Online has the more structured method. If you’ve ever used QuickBooks Desktop, it’s essentially the same thing. Your withdrawals (credits) are on the left hand side and your deposits (debits) are on the right hand side.

If you’ve used the QuickBooks Online Banking page’s For Review tab to process imported transactions, than most should be pre-cleared for you (cleared meaning that you’ve verified that the transaction in your accounting software matches a transaction in your bank statement).

At the bottom, it’ll show you your total withdrawals and deposits, as well as your beginning and ending balance. If there’s a difference between your ending balance and your bank statement’s ending balance, you’ll see the difference.

If you only have a single transaction that is incorrect, it’s usually easy enough to search for what went wrong. If you have multiple transactions, this verification screen is not necessarily the most helpful. However, I do like this screen, as it helps pinpoint a moment in time when your balances between your accounting software and bank statement do match. Since the verification is saved into the system, you can go back and see when your balances went out of sync.

A tool that is probably easier to use is the Account History view, which you can access by going to the Chart of Accounts page and clicking on Account History. This will give you a view of all your transactions entered into the software. From this view, you can clear transactions, as well as delete and add them. By default, the view is set to two lines, where you can see the accounts that are debited and credited.

But if you’re looking to find when your balance went out of sync, you can change the view to show running balances and only one line. This will make it easy to do a quick scan. I find this is the easiest way to investigate what went wrong with a reconciliation.

Xero

In Xero, you verify your transactions by going to the Reconciliation Report.

The default view is Bank Reconciliation Summary tab, which, if everything is A-OK, doesn’t show you much. It’ll show you your Balance in Xero and then your (bank) Statement Balance. However, if you have discrepancies, you’ll see what’s wrong. You’ll get a list of:

  • Outstanding Payments
  • Outstanding Receipts
  • Unreconciled Bank Statement Lines

The view I prefer to see is the Bank Statement tab, which provides your opening balance and closing balance.

Since it provides a running balance, it helps me locate where the balances went out of sync. Note that these transactions are your bank statement transactions, so they’re not necessarily what’s entered into Xero. If it has been matched to a transaction entered into Xero, it’ll say Yes in the Reconciled column. (One thing you need to remember is that in order to see all the details, you need to click on Wide View.)

The source of most of the transactions will be either Auto (if you’re using the bank feed) or Import (if you uploaded a bank statement file). But if it’s a transaction that you manually entered into Xero and then reconciled, this will be categorized as manual. This means that you manually added it to the list of bank statement transactions, rather than importing it via a file upload or bank feed.

The last view is Statement Exceptions. These are any transactions that were in the bank statement but that you deleted.

With any of the views, you can Publish the report, which will then save it in your list of reports, allowing you to go back in time and see when your balances were in sync.

The Bank Reconciliation Statement used to be the way I would comb through transactions to spot an error, but now I find I can usually accomplish the same objective through the Banking page’s Bank Statements tab.

With that view, you can see pretty much the exact same thing as the Bank Statement tab found in the Reconciliation Report. They have the same name, so it’s a bit confusing, but one is a report that doesn’t allow you to drill down into transactions, while the other is an interactive list that you can click on to drill down into transactions, search them, delete them, and restore them.

There are also two views, one being Statement Lines (which is the view I vastly prefer and you can see in the above screen shot) and Statements. The reason I prefer the Statement Lines view is that it’ll provide that running balance and interaction with the transactions. The Statements view only shows you the balances on the dates that you imported transactions (which, if you’re using a bank feed, can mean every day).

The Xero Banking page’s Account Transactions tab shows all the transactions that have been entered into Xero, whether they’ve been reconciled or not.

You can click on any transaction to drill down into it, hover over transactions that have attachments to see a preview (if it’s an image), sort the transactions by column header, search the transactions, add new transactions, delete transactions, and reconcile transactions.

Differences

In Xero, you’ll find bank statement transactions in the Bank Statements tab and transactions that have been entered into the software in the Account Transactions tab. Both tabs are found within the Banking page. Flipping back and forth between those tabs, I can verify the balance of the account at any moment in time, identify unreconciled transactions, and usually easily identify duplicate entries.

If I want to have a report and make the verification of transactions official, than I would go to the Bank Reconciliation Report and see the balances, outstanding transactions, and unreconciled bank statement transactions. From there I could publish a report that would be saved in the system

With QuickBooks Online, the Account History tab is where I would go to see if a balance is correct at any given moment in time. I would then go the Reconcile page to make the verification of transactions official.

The Reconcile page is where you can find duplicate and unreconciled transactions. Unlike Xero’s Bank Reconciliation Report, you can easily drill down into any transaction. Because it separates out deposits vs. withdrawals, you can figure out whether it’s a deposit, a withdrawal, or both, that is throwing your reconciliation out.

In the past, I would have said that I preferred QuickBooks’ method. However, now that Xero’s Bank Statements tab in the Banking page allows you to see running balances, and because the Account Transactions tab is right beside it, I find I don’t have to leave Xero’s Banking page to figure out why my balance isn’t correct.

Conclusion

I may have got a bit lost in all the details as I tried to describe what each system does and how they differ, so I want to make something clear. It’s not really what the systems can do, because they can largely do the same thing, but how they do it.

QuickBooks Online and Xero each use a different approach to organizing the data. I feel like Xero’s method is a bit cleaner and easier to work with, especially since it’s all in the same page (although separated by tabs). In QuickBooks Online, the account history page doesn’t link back to the reconciled bank statement, and the Reconcile page is also in a separate area, so it’s not as easy to follow the transactions history and associations.

This is a purely feel type of thing, but I have to give Xero the edge here. It’s just a more complete and thought-out solution. Xero can handle more exceptional situations and in general seems to be the “smarter” system, or perhaps the system that is less prone to errors. Once you have your data in, it’s easier to navigate and double-check it in Xero.

So, unlike in the previous article, where I couldn’t declare a winner between QuickBooks Online and Xero when it comes to speed, I will declare Xero the winner when it comes to working within the Banking page. Xero’s system is more usable, customizeable and accurate.

Have you had experience using both systems? What do you think?

Greg Lam will be presenting the sessions, Cloud Accounting Face Off and Setting Up a Paperless Accounting Flow, at Accountex 2016, Nov 15-18 in Las Vegas. The original post appeared on the Sleeter Group blog. AccountingWEB and Accountex have partnered to bring you this content as we share a belief in the furtherment of the profession through greater insights.

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