Best Practices for using Xero

| Categories: Bookkeeping , Xero

We have lots of clients who do their own bookkeeping in Xero. Here are our Best Practices for managing your own bookkeeping:

Best Practices for using Xero

  • Keep your personal transactions out of the business bank account.  If you need to spend on something personal transfer funds to your personal account and pay from there!  The transfer to yourself (and any personal spending you do include) is Drawings/Shareholder Loan.
  • Add your expenses as Bills or Spend money as you incur them.  This will avoid missing things.  Use Xero’s Email to Files or Email to Bills feature to get documents into the queue, or for more powerful features talk to us about Receipt Bank.
  • Upload scans of your receipts or Bills to the Xero transactions.  This makes our like easier and helps in the unfortunate event of an audit.  Remember that bank documents, Interac receipts, eTransfer notices and Paypal payment receipts are not adequate documentation – they don’t tell us much about the reason for the transaction.  Always ask for the proper receipt or invoice (especially if it is GSTable – no proper receipt = no claim).
  • Add descriptions to transactions that aren’t obvious from the receipts.  For meals, include who was there and what the meeting was for (to justify it as a non-personal expense).
  • Try to code your bank accounts at least once a month.  If you leave it longer than that it goes into the “Too hard – I’ll do it later” basket and grows like a fungus!
  • When reconciling transactions in the bank account think about whether you already have entered this.  If you think you have, search for it (if it doesn’t recommend automatically).  It may be made up of more than one element.
  • When reconciling transactions in the bank account and you see the words “x Other Possible Matches Found” on a recommended match be wary – the one you want may not be the one recommended.
  • When reconciling transactions in the bank account always look at the recommendations for reasonableness.  Xero’s good, but not perfect!
  • NEVER use the Mark as Reconciled option unless you have verified that this item is missing from the bank feed.  It will mess you up if you use it incorrectly.
  • Have a system.  Start by entering new data, then doing bank reconciliations, then paying bills.

Everyone needs a bath every now and then. It’s just good hygiene. Here are the things that you should do once a quarter (or for more active businesses, once a month) to maintain good hygiene:

  • Run your reconciliation report for each bank account and compare it to your bank statement.  Look for stale reconciling items.  Seek help if you see things sitting around that shouldn’t be.
  • Look at your Business, Invoices, Awaiting Payment (or run your Aged Receivables report).  Are any more than 30 days overdue?  Follow them up and collect your money!
  • Look at your Bills awaiting payment (or run your Aged Payable report).  Are any more than 30 days overdue?  Are there items there that you think you have paid?  Work out why they haven’t been paid properly – it usually represents an error in your bank section (something entered as a Spend Money when it should have been matched)
  • Look at your Business, Invoices/Bills, Draft and Awaiting Approval.  Are things sitting there that should not be there?  Action them.
  • Run your Balance Sheet report (Accounting, Reports).  Review all lines comparing to the last 3 months.  Look for balances that are growing, or clearing accounts that are too large.  Get help to properly reconcile these.
  • Run your Profit & Loss report (Accounting, Reports).  Look for items that look strange.  What is too high?  What is too low?  Drill into strange accounts and correct errors.

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