Only a bank account can be selected when completing the Xero integration setup under Banking. If an account is select that is not a bank account, an error will occur when applying a deposit, refund or when you're checking out your booking.
The bank account you should select from the drop down menu is the bank account your payments go to in Xero.
For example, if a payment is made on a booking, which bank account does that payment go to in Xero? The answer to your question should be the bank account you select.
If you have different bank accounts for different payment methods e.g. EFTPOS payments go to a different bank account, you can click + Add custom mapping to map the bank account for that payment method.