How do I get started with Xero?

Have a look at our Getting started with Xero guide.

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How do I convert from my old accounting system to Xero and what's the cost?

1. Set up the Xero account with an appropriate chart of accounts. If you currently use MYOB we can import the MYOB chart but often it makes sense to use the Xero chart of account and just add a few you may need.
2. Set up bank accounts in Xero with bank feeds and import historical bank data from 1/4/2011.
3. Set up credit cards in Xero and import historical data from 1/4/2011.
4. Set up invoicing in Xero.
5. Enter receivables and payables invoices outstanding as at 31/3/2011.
6. Enter conversion balances from your old system.
7. Training in Xero.

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What is the Xero Cashbook version?

The Cashbook version is a simplified version of Xero that is available only through Xero partners for their clients. It's formal name is the Partner Edition and it is also sometimes called the Accountants Edition. The main differences between it and the full Xero versions (Small, Medium and Large) are that in the Partner Edition:

1. You can’t change the chart of accounts or add items to the dashboard. These need to be set up by your accountant. 
2. You can’t create invoices for accounts receivable or accounts payable. 
3. There is an “Ask your Accountant” option on the help menu – this sends questions to us via email.
4. There are some extra reports available to your accountant.

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How do I code money I put into or take out of the business?

If you transfer money into the organisation (e.g. to help pay for mortgage interest for a rental property) code to 970 Funds Introduced.

If you are paying yourself a salary and paying PAYE to IRD code to 477 Salaries. The PAYE component can be coded to 477 Salaries or 477/PAYE IRD PAYE Tax (your personal preference).

Otherwise code all money you take out of the organisation as 980 Drawings and at the end of the financial year your accountant will sort it out.

Also have a look at What do I code tax payments and refunds to?

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How do I manage my business credit card?

The easiest way by far is to set it up as a bank account with an automatic bank feed and then reconcile the transactions as you do for an ordinary bank account. Most New Zealand credit cards now have bank feeds.

If you don’t have a credit card that supports bank feeds you can still set up another card in Xero but you will need to manually import statements on a regular basis so you can reconcile them. If you do this we have found that the best way to avoid missing or duplicated transactions is to:

1. Set the import start date as the day after the last transaction imported - e.g. In the example below the start date would be 9 February 2011.
2. Set the end date at least two business days before the day you do the import (some banks like to change the transaction dates a day after the transaction has turned up in internet banking).
3. Import once a month or so - don't leave it too long as some banks only hold three months of transactions online.
4. When importing if you get prompted to enter a date format select DD/MM.

Remember if you have the card setup as a bank account when the payment goes out of your transaction account to pay the bill code this as a Transfer not a payment (see transfers below).

If you don’t set the card up in Xero then when you pay for the credit card bill from one of your business bank accounts the payment will come up as a transaction to be reconciled. When you reconcile the payment in Xero use the Add Details link on the Create tab to add line items for each of the purchases the payment is paying off, coding each to the correct account code. This will only work if you always pay off the full amount rather than the minimum payment and it is time consuming if you have lots of credit card transactions.

There is a good explanation of how to manage credit cards at the Xero help centre here.

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How do I manage my personal credit card when I use it for business?

If you use it mostly for business then set it up as a business credit card as above and code any personal transactions to Drawings. If you use it mainly for personal use and occasionally make a business purchase then claim the expenses back as detailed below.

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How do I reimburse myself for business expenses I've paid for?

For individuals and small businesses we recommend keeping a breakdown of expenses in a spreadsheet and periodically making a payment from the business account to yourself for the amount of the expenses. When you reconcile the payment in Xero create a transaction and use Add Details to add a line for each of your expenses selecting the appropriate expense code.

If you have a version of Xero with invoicing (i.e you have the option to Add a Receivables or Payables invoice on the dashboard) then a fast and easy way to reimburse yourself is to use an Accounts Payable Invoice. When the invoice is complete Approve it and then either transfer the money to pay you the total of the invoice or pay it out of funds introduced. Coding it to Fund Introduced adds it to the amount the business owes you and it will be offset against drawings at year end.

If you don't have invoicing you can use an Expense claim - it is a bit more convoluted but it gets there. The steps involved are:

1. Create an expense claim and add receipt(s)
2. Submit for approval
3. Approve
4. Pay the claim (transfer money or from Funds Introduced)

Regardless of which way you do it make sure you put plenty of detail in the description field so you don’t have to go hunting later to find out what the payment was for.

Have a look at the next FAQ item for more details on Accounts Payable invoices and Expense Claims.

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How do I enter home office costs into Xero?

First off you need to know what home office costs you can claim and the the percentage of your home you will be claiming for (see the FAQ item here for details). 

If you have a version of Xero with invoicing (i.e you have the option to Add a Receivables or Payables invoice on the dashboard) then a fast and easy way to enter you home office costs into Xero is to use an Accounts Payable Invoice. If you don't have invoicing you can use an Expense claim - it is a bit more convoluted but it gets there.

Alternatively you can just give us the information at the end of the year and we will add it into the final accounts for you!

Using an Accounts Payable Invoice

Create a new Accounts Payable invoice dated the last day of the financial year (e.g. 31 March) and add a line for each cost you are claiming.

• Set the reference to Home Office and the amounts to be Tax Inclusive. 
• Enter the percentage you are claiming in the quantity field (e.g enter 10% as 0.10) and the full amount of the expense in the unit price field.
• Code all home office costs to Office Expenses.
• If you are entering interest on your mortgage make sure that you set the tax rate to No GST for that line.

 

If you need to change the invoice after you have paid it just click into the paid invoice, click into the payment and delete the payment. Then you can edit the invoice and add the payment again.

Using an Expense Claim

Create a new expense claim as detailed in the FAQ above and enter the home office costs.

• Set the line amounts to be tax inclusive.
• Add a line for each cost you are claiming, enter the percentage you are claiming in the quantity field (e.g enter 10% as 0.10) and the full amount of the expense in the unit price field.
• Code all home office costs to Office Expenses.
• If you are entering interest on your mortgage make sure that you set the tax rate to No GST for that line.

Once you have your claim completed then you can submit it, approve it and pay it from Funds Introduced.

Important: When you approve the claim you are asked to enter the payment and reporting dates and authorise it - use the date you want it recorded in the accounts (usually the last day of a GST period or the last day of the financial year). Once the claim has been Authorised you can't change it - you have to void it and start again!

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How do I code expenses I invoice a client for?

From a tax and GST point of view it doesn't matter as long as the GST is correct and is treated the same way when you code the expense and also the corresponding payment from the client.

However if you have a lot of these expenses it is best to separate them out so a) you can find them easily and b) they don't get included in your normal business expenses and overheads. To do this create a Reimbursible Expense expense code and code all the expenses you are going to invoice client for to this code when they are incurred. When you invoice the client also code the income to this expense code. The balance of this account then always shows what you haven't yet invoiced clients for.

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How do I code transactions to individual rental properties?

In other accounting systems you would usually set up separate ledger codes for each rental property then code the transactions to these. This gets unwieldy as you end up with a lot of account codes that are effectively the same thing. Xero has a better way of doing it called "Tracking". You set up a tracking category (e.g. Rental Properties) and then add each rental property as an item (e.g. 53 Marine Parade, 17 Hill St) and whenever you reconcile a transaction you can select the category and property that the transaction relates to from a drop down list. The Xero reports have options that allow you to report by tracking category.

There is more detail on this at the Xero help centre here.

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What do I code equipment purchases to?

For purchases of equipment less than $500 (excluding GST) per item code to the appropriate expense code (e.g. for a printer code to 310 Computer Equipment).

Equipment costing $500 or greater (excluding GST) is treated as a fixed asset and must be coded to an asset account in the 700 series (e.g. 710 Office Equipment). At the end of the financial year we will calculate the depreciation for the assets and code it to the assets depreciation account.

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How do I code entertainment expenses?

Definitive answers on what you can and can't claim are contained in IRD's IR268 booklet on entertainment here.

Usually entertainment expenses (meals and drinks consumed off the office premises) are 50% deductible so you code half of the payment to “420 Entertainment” and half to “424 Entertainment – Non deductible”. You can do this in Bank Reconciliation by clicking the Add Details link on a transaction and adding a second line. If you put 0.50 inthe quantity field Xero will do the maths for you.

If you bring food or drinks into your office (e.g because people are working late) then it is usually fully deductible - code to 453 Office Expenses.

If you are travelling for work any of your accommodation and associated costs (meals etc;) are fully deductible - code to one of the travel expenses codes. However if while travelling you are paying for meals for work related guests then the cost of the meal is only 50% deductible - code 50% to travel and 50% to 424 Entertainment - Non deductible.

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How do I code refunds I receive?

Refunds you receive will appear as receipts in the bank reconciliation. Code them to the same account you coded the original payment to.

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Can I claim GST on overseas purchases and imports?

You can only claim back New Zealand GST that you have been charged.

If you are travelling overseas then there will not be any GST to claim on your overseas purchases and travel.  When you reconcile the payment make sure you click Add Details and select No GST or create a ledger code specifically for the overseas expenses that defaults to No GST. Don't be fooled by the Australian GST - its not the real thing and you can't claim it in New Zealand, it is just a part of the purchase price.

If you are importing goods into New Zeland then there may be GST you can claim. Some of the invoices you get from the freight forwarders can be quite confusing so you may have to look carefully to find these costs:

• Those costs without any GST – e.g. overseas freight, insurance and admin fees, duty. Code to the appropriate code in Xero with Tax Rate No GST.
• Those costs that do have GST on them – e.g. NZ freight, insurance and admin fees. Code to the appropriate code in Xero with Tax Rate 15% GST on Expenses.
• The GST on imports that customs charge you. Code to 820 GST with Tax Rate GST on Imports. This makes sure it shows up in the Xero GST return as GST you have paid.

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What do I code tax payments and refunds to?

We have found there is some confusion over where to code various tax payments to IRD to – it’s not surprising as there are a lot of them! To simplify things for our clients we have removed some extra codes that are not needed and renamed the remaining tax codes. You should code the multitude of IRD tax payments/refunds as follows:

A couple of things to note:

1. Don’t code anything to 505 Income Tax Expense at Year End – it’s for us to use when finalising the tax position at year end. 
2. If you type IRD in the account code box on the reconciliation screen it will bring up all the relevant codes for all taxes except GST. 
3. If in doubt code to 830 IRD Income and Provisional Tax.

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What do I code GST payments and refunds to?

Code all GST payment to IRD / refunds from IRD to 820 GST.

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How do I fill out the IRD online GST form?

First of all make sure you have reconciled all your transactions in Xero to at least the end of the GST period, run the Xero GST report and checked the Xero GST audit report.

When you are ready to file your GST return you need to let Xero know you are doing this by pressing the orange File Now button at the bottom of the GST report (if you have financial advisor role you also need to press the green Publish button on the next screen). Xero uses this information so that it can work out if any adjustments are needed in future reports due to transactions in previous periods being edited.

Then you go to the IRD website and follow the "Get it done online" link on the main page to get to the GST return here.

If you are filing a GST return and also paying provisional tax follow these steps:

1. Enter your name, GST number and DLN number (from the paper form they send you) and the period you are doing the GST return for.
2. For Sales and Income select "I know the GST on sales and need to work out the total sales" and for Purchases and Expenses select "I know GST on purchases and need to work out total purchases".
3. Where it asks "Are you a provisional payer?" answer YES.
4. On the next screen enter the GST on sales (box 8) and purchases (box 12) from the Xero report. The figure that IRD tells you to pay/refund should match exactly what the Xero report says.
5. In the Provisional tax calculations section make sure you click the correct option for the question "Do you use the Ratio Method?" - usually your answer will be NO (if you are not sure ask your accountant!).  
6. If you are on the ration method then fill in the Ratio method calculations (boxes 16 - 23) otherwise skip them.
7. Click the Continue button.
8. Enter in the amount of the provisional tax payment in box 24.
9. If you are receiving a GST refund and want IRD to put it towards the provisional tax due (rather than sending the refund out to you) enter the amount to be transferred to provisional tax. Otherwise enter 0.
10. Finish and file the GST return.

If you are filing a GST return only (not paying provisional tax with this return) follow these steps:

1. Enter your name, GST number and DLN number (from the paper form they send you) and the period you are doing the GST return for.
2. For Sales and Income select "I know the GST on sales and need to work out the total sales" and for Purchases and Expenses select "I know GST on purchases and need to work out total purchases".
3. Where it asks "Are you a provisional payer?" answer NO.
4. Then on the next screen put in the GST on sales (box 8) and purchases (box 12) from the Xero report. The figure that IRD tells you to pay/refund should match exactly what the Xero report says.
5. Click the Continue button.
6. Finish and file the GST return

Now all you need to do is pay the GST (and Provisional Tax) to IRD or if its a refund watch it come into your bank account. We recommend you do separate bank payments for each as it makes your reconciling easier. Remember when you reconcile the payments or refunds in Xero code GST to "820 - GST" and Tax to "830 - IRD Income and Provisional Tax".

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What do I code provisional tax payments to?

These get coded to 830 IRD Income and Provisional Tax. At the end of the year your accountant will calculate total amount of tax expense for the year and use 505 Income Tax Expense at Year End to record that.

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What do I code PAYE tax payments to?

Code to 477/PAYE IRD PAYE Tax. If this code is missing use 477 Salaries.

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How do I change the account code on a reconciled transaction?

You can edit a reconciled transaction to change any details (including GST) using the Manage Account button then clicking Account Transactions:

1. Click the transaction you want to change - this will take you into it 
2. Click the Payments Option button and select Edit Transaction 
3. Change the details then click the Save button.

Depending on what you need to change it can be faster just to delete the transaction and re-reconcile it. To do this use Manage Account/Account Transactions and delete the transaction by ticking the tick box on the left and clicking the Delete button:

Then go back into the reconciliation screen – the transaction should appear there and you can reconcile it with the correct code.

Why not use the un-reconcile button you may very reasonably ask? Well if you do it leaves half a transaction lying around and makes the balance in Xero wrong so please don't. We and many other accountants have asked Xero to change this so it is more obvious what the right thing to do is - we are still waiting... 

If you want to see all transactions coded to a particular code then Settings/Chart of Accounts, find the account code and click on the number to drill down and see all transactions coded to that code (oldest to newest).  Alternatively you can use Reports/All Reports/Account Transactions, select the account code and date range and click Update. Note these are all GST exclusive amounts.

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How to I handle transfers between bank accounts?

In Xero you can code transfers between bank accounts directly in the reconciliation screen. On the right hand side of the reconciliation screen there are Match, Create, Transfer and Comments tabs.

1. Source account: When reconciling a transfer select the Transfer tab and then select the bank account the transfer is going to. Click Ok. 

2. Destination account: When you reconcile the transfer transaction Xero should match it up with the transfer you created in the source account and show it on the Match tab. Click OK to reconcile.

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Why is my bank balance in Xero wrong?

Xero shows you two balances for each account, the Statement Balance and the Balance in Xero.

For accounts with automatic bank feeds when all transactions for an account are reconciled both these balances should be the same and they should match the actual balance of the account at the bank.

The Statement Balance

The Statement Balance is worked out from the opening balance set in conversion balances plus the transactions reconciled to date plus any unreconciled transactions. 

The main causes of the Statement Balance Xero not matching the actual balance at the bank are:

• The conversion balance has not been set for the bank account
• The conversion balance set was wrong and did not match the bank statements
• Missing transactions - a gap before automatic bank feeds started
• Duplicated transactions - manual imports of bank statements with overlapped date ranges
• A bank transaction has been deleted from the Reconcile Now screen

For accounts with automatic bank feeds you can usually click Manage Account/Bank Statements and see the actual bank balance at the bank when the statement download occurred. You can also run the reconciliation report (link on dashboard next to the account) and this should show you if the Xero bank balance is out. However it only seems to work on those dates that downloads occurred on so it's best to check the balance using Manage Account/Bank Statements.

The exceptions tab on the reconciliation report will show you any bank statement lines that have been manually deleted.

The Balance in Xero

The Balance in Xero is worked out from the opening balance set in conversion balances plus all transactions coded in Xero - it does not include unreconciled items and it may include orphan transactions (transactions that exist in Xero but don't have a matching bank transactions).

We get a lot of support calls about the Statement Balance and Balance in Xero not to matching and and it is nearly always to orphan transactions. Common causes for these are:

• Coding a receipt or payment as a transfer to another account in Xero when it wasn't a transfer to that account. This automatically puts a transaction in the other account ready to match a bank statement line.
• Using the Unreconcile option in the Manage Account/Account Transactions screen.

In the reconciliation report anything in the Outstanding Payments or Outstanding Receipts sections are orphan transactions. 

 Orphan transactions can be safely deleted from the Manage Account/Account Transactions screen. They are the ones with the orange icon.

There is more information on the Xero help site here on how to work out why your balances don't match.

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Where do I find out more about coding transactions?

Have a look at our Xero Coding Guidelines.

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How do I use credit notes in Xero?

There is a really good explanation of credit notes on the Xero Help site here.

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How do I reconcile a partial payment on an invoice?

You can apply a part payment to an invoice from within the bank reconciliation screen. In the reconciliation screen click the Find and Match link.

On the Find and Match screen tick the invoice or expense claim that you want to apply the partial payment to.

Then click the blue "Split" link on the line you just ticked and enter the amount.

Click Split then Reconcile to save it.

There is more detail on this at the Xero help centre here.

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How do I reconcile a payment for multiple invoices?

You can apply a payment to more than one invoice from within the bank reconciliation screen. In the reconciliation screen click the Find and Match link. 

On the Find and Match screen tick the invoices that you want to apply the partial payment to then click Reconcile.

If the total of the payment is less than the total of the invoices then use the Split option described in the previous FAQ.

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How do I code an overpayment from a customer?

November 2011 updates to Xero have made the processing of overpayments and prepayments simpler.

To process an overpayment (e.g. a customer pays $450 on a $400 invoice, overpaying by $50):

1. On the $450 payment on the reconcile screen click Find and Match
2. Tick the invoice the payment is for - this leaves the total out by $50
3. Click the Create new transaction +New button and select the Receive Money option
4. On the Receive Money transaction click the Direct Payment button and select Overpayment
5. Change the From to be the contact name (if not already set correctly)
6. Check the amount is the correct amount of the overpayment and click Save Transaction
7. Now on the Find and Match screen two items will be selected, the $400 invoice and the $50 overpayment adding up to the $450 paid - click the Reconcile button

The end result is that the payment is reconciled and there is a special type of credit note created in Account Receivable/Awaiting Payment for the overpayment. The next time you invoice the customer Xero will ask you if you want to apply the credit.

If you want to refund the overpayment to the customer then go into the credit note and at the bottom fill in the Make a cash refund section, entering the amount being refunded (usually the full amount of the overpayment), the date you are refunding them and the bank account the refund will be paid from and click Add Refund. Then when the refund has been paid and you go to reconcile the transaction it will match the overpayment credit note.

The screen shots below show the process in more detail.

On the $450 payment on the reconcile screen click Find and Match, tick the invoice the payment is for - this leaves the total out by $50, click the Create new transaction +New button and select the Receive Money option

On the Receive Money transaction click the Direct Payment button and select Overpayment

Change the From to be the contact name (if not already set correctly)

Check the amount is the correct amount of the overpayment and click Save Transaction

Now on the Find and Match screen two items will be selected, the $400 invoice and the $50 overpayment adding up to the $450 paid - click the Reconcile button

If you want to refund the overpayment to the customer then go into the credit note and at the bottom fill in the Make a cash refund section, entering the amount being refunded (usually the full amount of the overpayment), the date you are refunding them and the bank account the refund will be paid from and click Add Refund. 

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How do code small differences between what was invoiced and what was paid?

You can adjust for small differences (cents rather than dollars) between what was invoiced and what was paid using the adjustment option in the reconciliation screen. 

For larger differences you can do a find and match to match the invoice and then click the receive money button on the find and match screen to create a receive money transaction for the remaining amount. If it is an overpayment then have a look at the Overpayments FAQ item.

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How do I know my Xero GST return is correct?

 Before you file your Xero GST return you should check the following:

1. If you have bank accounts without automatic bank feeds make sure you have downloaded and imported all transactions for GST period.
2. You have reconciled all transactions for the GST period.
3. The bank balance in Xero is correct for each of your bank account and there are no orphan transactions showing in the reconciliation report(s) - this FAQ gives detailed information on how to do this.
4. You have entered any expenses paid for personally over the GST period - this FAQ gives detailed information on how to do this via expense claim or accounts payable invoice.
5. If you are on an invoice basis for GST make sure you have all your invoices entered into Xero for the period.
6. Run the GST report and check the Audit tab to make sure you have coded GST correctly - e.g. overseas purchases generally won't have GST.
7. If there are any unusal or unusually large transactions in the period check you have coded them correctly.
8. Have a quick look at the adjustments tab - it can be quite confusing but give it a go! Xero creates adjustments to correct GST when you change a transaction that was filed in a previous GST return. For each transaction updated there will be two entries, one to reverse out the original transaction and one to put in the updated transaction. If there is no affect on GST (e.g. you just changed tracking) then the net affect should be $0.

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Why has Xero put adjustments into my GST return?

The Xero GST report was updated for the GST increase on 1st October 2010. As a part of this the GST report has been made smarter and will automatically put in adjustments when it thinks they are needed, for example it will add adjustments:

• When you code an item with 12.5% GST after 1 October 2010. Because IRD now expects all GST in the main part of the return to be at 15% any receipts or payments at 12.5% are entered in the return as adjustments. They do not get included in the sales and purchases section of the main part of the return.

• If you change a transaction that has already been included in a previous GST return (for example change the account code) then Xero will reverse out the GST on the original transaction and put it back in for the updated transaction. This all happens on the adjustment tab. You get two entries, one taking out the GST from the original transaction and one next putting the GST in as coded for the updated transaction. This looks quite confusing where there has been no change in the GST treatment, for example if just the tracking code was updated, as the net affect is $0 but Xero tell us it was easier for them to do it the same for all updates rather than to work out that for some the two halves cancelled each other out and therefore could be left out of the report. Perhaps in a future update the report will be smart enough do this.

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How to I enter fixed assets into Xero?

If you have assets you want to get into Xero then you can do it via an accounts payable invoice coded to an asset code and paid from Funds Introduced (paper transaction) OR by transferring the money out of the business to yourself and reconciling it either to an AP invoice, or coding it to the equipment code when you reconcile it. A couple of points to note here: 

• You can claim GST on second hand goods
• If the item is worth less than $500 excluding GST then code it to an expense code, i.e. you claim the whole lot as an expense and it doesn’t get treated as an asset (unless you really want to see it as an asset)

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