Having used Xero accounting software now for over 5 years we come across the same problems over and over again. Read our guide to avoiding the most common Xero problems
These mistakes are easy to make but can have a serious effect on the accuracy of your accounts.
1 Bank Balance in Xero doesn’t match Bank Statement or Online Balance
At least every month you need to make sure that the Xero bank balance is correct.
Why? If you are using a bank feed this can very occasionally contain errors caused by technical problems with the download. There could potentially be missed transactions or duplicates.
How to check? Go to bank account and look for reconciliation report (below).
Run this report for the same date as your bank – e.g. 30/09/18. Check that the bottom figure on the Xero report matches the figure on your bank statement.
Click here to find out more about bank reconciliation in Xero.
2 Accepting the suggestions for bank reconciliations without checking
Xero will suggest an entry for bank lines based on previous entries made. This may or may not be correct! If you are inclined to click without checking I suggest you turn this off – it’s a simple checkbox at the bottom of your screen.
3 Salary Payments have been posted incorrectly
This is slightly more technical and only affects those who use Xero to process payroll or who post a journal each month to account for payroll.
In the above case:
- Salary payments should always be posted to ‘wages payable’
- PAYE should be posted to ‘PAYE payable’
- and Pensions should be posted to ‘Pensions Payable’
If you post them to wages or the PAYE or pension expense account, you will double the expenses coming out of your business – decreasing your profits.
Watch the video below to learn how to reconcile payroll payment transactions
If you are finding it hard to keep on top of your company’s payroll, why not take advantage of our reasonably priced payroll services.
4 Entering everything you pay out as a Bill
When you receive a bill from a supplier, it is best to enter the bill into Xero and then pay your supplier via the bank reconciliation screen.
It is not so good if you enter all your expenses (e.g. Bank fees, interest payments, loans etc.) as bills because this makes for a lot of work.
This is all much easier handled via the bank reconciliation.
Ideally you should set up a rule for all regular payments – this makes the bank reconciliation much faster and avoids errors.
Any one-off expenses (e.g. Annual insurance payments) can be handled via a ‘spend money’ transaction from the appropriate bank account.
Watch this short video to find out more about using bank rules to automate reconciliation in Xero:
5 Exempt VAT – No VAT – Zero VAT
This is confusing for many of our clients. Put simply:
- No VAT should be used only where a supplier is not registered.
- Exempt VAT – should be used for any items you purchase which are exempt – this will include things like insurance and interest.
- Zero VAT – should be used where VAT is shown as zero rated. Most commonly used for food items. Your bookkeeper may also use this where no receipt has been provided.
6 Deleting Transfers
If your bank reconciliation is out, you discover that a transfer has been entered incorrectly on Xero. If a transfer from one account to another account is incorrect you need to be very careful when removing it!
Check the source account to see where the transfer actually went. If you just delete it you are deleting the transaction in both accounts and the bank balance will be incorrect.
Once you have removed the transfer go back to the source account and re-enter with the correct destination.
Then – remember to go back and reconcile the transactions.
7 Similar or identical transactions have been coded to different account codes
This isn’t a major issue but will cause confusion for your accountant. Where possible use rules to ensure that your transactions get coded to the same place each time.
Set up supplier and sales accounts with default codes – the work is then done for you and you can be sure your coding is consistent.
Roden Associates are here to help
If you are having trouble using Xero, or would just like to free up your time to focus on running your business, give us a call. We offer professional outsourced bookkeeping services for small business in Edinburgh, Glasgow and Central Scotland.
Book your free consultation today