Getting started in xero

These notes are about day to day operations.

On the Xero help pages there is a really good overview of the daily, weekly and monthly operations. There are also frequently asked questions though only those in the second column relate to day to day operations.

These notes assume that you are using the chart of accounts provided by Underwood Barron. This differs from the standard Xero chart.

Step by step

1. Enter the sales invoices onto the system or use the system to generate a sales invoice.
2. If you are using a purchase ledger, enter the purchase invoices onto the system.
3. If you do not have Yodlee feeds, download the bank statements using these instructions.
4. Use the bank reconciliation function to match the bank receipts to the sales invoices.
5. If you are using a purchase ledger, use the bank reconciliation function to match the bank payments to the purchase invoices.
6. Use the bank reconciliation function to deal with receipts other than from sales. For example, bank interest received or loans received.
7. Use the bank reconciliation function to deal with payments other than those relating to the purchase ledger. If you are not using a purchase ledger, that will be all the payments.

If you are using a purchase ledger, first check that you do not have an invoice to enter in the purchase ledger. Then use the reconciliation function to deal with those payments without a corresponding purchase invoice. For example, loan repayments, bank charges or salary payments.

Problems

There is no substitute for using the help provided by Xero. It is worthwhile using the demonstration company provided by Xero to practice using the product.

Regular tips

• Xero can be a bit cumbersome when repeating tasks. The “back button” on the browser works well as a quick shortcut to returning to the previous position.
• Tip on printing -Many reports have a better layout if you choose to export to pdf format and then print from there.

Traditional cash book

The Xero presentations emphasise the benefits of downloading bank statements and working from there. Many people are used to a traditional cashbook where you enter the transactions as they occur. For example, you would write up the cashbook when you make out a cheque, even though it may be several days or even weeks before the supplier presents the cheque and it passes through your bank account.

Xero can work in a similar way. They use different terminology and call it undeposited funds. These do not appear in a separate cashbook but instead appear on the bank reconciliation as known items that have not yet passed through the bank account.

It is essential to import the actual bank statements into Xero. Then reconcile the actual bank transactions against these “undeposited funds” and not duplicate entries by matching the actual bank payments against an entry created on the right hand side of the reconciliation screen.

Part payments

It is common to receive an instalment towards an invoice. There is a choice of three ways of processing these part payments.

Batch payments

These are the opposite, when you receive a single payment covering several sales invoices. There is a full explanation of all the processes in the Xero Help, but this is a bit difficult to follow.

A short explanation is as follows:

• On the bank reconciliation screen, find the receipt or payment in the left hand column. In the right hand column, click the "match" tab. Then click on "Find and match".
• This opens a list of unmatched items. If this is unmanageably long, go to the right hand side to the column headed "Match Options". In the first box, enter the first few letters of the name and "enter". This will shorten the list.
• On the left hand side, tick the items that make up the total of the payment. When the totals match, the "reconcile now" button will appear.

Useful reports

Xero assumes that you want a report for the current month. However, you may need to run a report for a previous period several times, particularly if trying to correct some error. The easy way is to run the report once. Then click on the “Save as draft” button. Give it a meaningful description. Next time, simply select the draft report and click on “Update” to get an updated report for that period.

As useful housekeeping, delete obsolete draft reports from time to time.

Bank statement

This report enables you to check that you have imported bank transactions correctly. Whether or not you have reconciled the bank, this report should look exactly the same as the bank statements. You access it from Reports – Bank Reconciliation Summary. The report is on the second tab.

Advanced techniques

Salaries

The “Spend Money” technique is used to set up a payment that is the net of deductions, such as a salary.

• Pick the bank account that will make the payment and select “Spend Money”.
• Enter the introductory details.
• Date the document the in the month the expense relates to. For example, 30 September for the September salary, even if you know the payment will not pass through the bank until October.
• Enter the gross salary on the first line and select account 255 for a staff salary or 254 for a director.
• Choose “Add a new line”. Enter the employers NI and select account 256.
• Choose “Add a new line”. Enter the total tax and NI in respect of this payment as a negative amount and select account 755.
• The document total should now be net salary due to the individual. If it is, select “Save”.

Construction industry scheme (CIS)

If there are only a few non-VAT registered subcontractors paid under CIS, you can use the Spend Money technique, except that you would charge the gross payment to account 53.

Alternatively, you can use Accounts Payable and create a purchase invoice. You will need to use a purchase invoice if the subcontractor is VAT registered. Be careful to change the VAT rate for the gross invoice amount. You use the next line for the deduction, charged to account 755, with a negative amount.

Importing payable invoices

It is possible to import invoices from an Excel list. However, this is cumbersome and should only be used if there are a large number of invoices to import.

Describing payments

The "bank reconciliation" function has a long-winded way of describing payments. If you are not using a purchase ledger, go into Bank Reconciliation. The default tab is called "Reconcile statement lines". Alongside that is a tab called "Cash coding". Select that tab and you have a table like a spreadsheet that you can use for quickly coding payments.

Receiving money against several sales invoices

It is common for a customer to make one payment to you covering several sales invoices. On the Bank Reconciliation screen, Xero cannot suggest a match because the receipt does not correspond with any single invoice.

Go to the right hand side a click on "Find &s; Match". Xero will display a list of outstanding sales invoices. Simply tick the relevant invoices until the total matches with the receipt. Then click "Reconcile" and that does the matching.

If the list of outstanding invoices is too long to scan quickly, you can use the search panels at the right hand side to narrow down the list.

Receiving a payment on account

If the customer makes a part payment, this can still be reconciled.

First, go to Accounts Receivable and select invoices awaiting payment. Select the particular invoice. Towards the bottom, there is a panel called "Make a payment". Enter in that panel the ACTUAL amount paid on account and the date. Be careful, the default is the outstanding amount. In "Paid to", select the bank account that received the payment. Then click "Add Payment".

Now return to the bank reconciliation. Xero should suggest the match.

Receiving a deposit in advance

Sometimes customers pay a deposit in advance of confirmation of the sale and the issue of an invoice. One way of dealing with this is to create a draft sales invoice dated when you expect to issue the real invoice. When you match the receipt against this invoice, you will get a warning that the receipt was in advance, but you can ignore that message.

In due course, you can issue the final sales invoice (on the real date) for the difference. If the final invoice is in a different month from the expected date, you can issue a credit note (on the original date) to cancel the deposit invoice and issue a new invoice for the full amount.

This procedure allows you to reconcile the bank. It records the sale in the month when the invoice is dated and so does not overstate current sales.