Xero is the online accounting software that combines all accounting matters for contractors and businesses, and safely stores them in the cloud. Everything from purchase orders and invoices, to payroll and workplace pensions, are available in one place – and accessible anywhere with an internet connection. When using Xero as a business owner, you can easily keep your accountant up to speed, and spot issues as soon as they arise. One common issue many small business owners come across is that the numbers simply don’t add up – don’t panic, as a Silver Champion Partner of Xero, we can share insights with regard to common mistakes when using Xero and how to avoid them.
1. Entering the wrong invoice type
Just like an accountant, Xero doesn’t classify all invoices the same. Supplier invoices, also known as ‘accounts payable’, are separate from sales invoices, known as ‘accounts receivable’. Make sure you choose the right type of invoice. Another common mistake is entering receipts – such as from a shop – as a purchase invoice when it’s actually a payment. You wouldn’t refer to a shopping receipt as an invoice in real life, so you shouldn’t do so when using Xero either. If your company provides quotes to your customers and they are happy to go ahead, you only need to go back to the original quote and click on the ‘Create Invoice’ button at the top, without having to create a separate invoice.
2. Transfers between bank accounts
If you have more than one bank account in Xero and you are recording a money transfer between these bank accounts, you only need to create an entry once on the first bank account and Xero will automatically create a corresponding entry on the second bank account. In the event that you create two entries on each account respectively for the same transfer, it will result in an unreconciled transfer which can be concerning. To make the process easier, open up the reconciliation screen for each account in different tabs, and go between them as you enter to match transfers. Don’t forget to refresh the page.
3. Entering the same invoice twice (or three times, or four…)
This mistake is common in situations where multiple people are using Xero at the same company. A simple way to overcome this is to assign your invoice according to the business function it corresponds to, such as straight-forward product sales, after-sales training and on-going consultancy. To do so, you can add a note to clarify exactly how the invoice should be recorded: go to your Chart of Accounts, click on the account name and edit the description. Remember to share this with your colleagues to help eliminate duplicate invoices.
4. Not entering payroll data correctly
If you are using a separate payroll software with Xero, you will need to enter the transactions via a manual journal. However, it is important that you do not confuse your payroll costs with your individual liabilities. The total expenses to your business will be director’s remuneration, salaries and employer’s NI contributions combined. These should be entered separately as ‘debits’ in your journal. Your liabilities – payroll, tax and NIC – should be entered as ‘credits’. Once you have done this, your expenses and liabilities should match – otherwise, it can indicate you have underpaid or overpaid.
5. Not checking bank statements
Don’t assume that the ‘Statement Balance’ figure you see is actually identical to your bank statement. The statement balance is a calculated balance and may therefore be different from your real bank statement. There are several issues that can cause Xero to calculate your balance incorrectly, in particular if you have unreconciled transactions or if you have forgotten to enter transactions in Xero altogether. By comparing your bank balance regularly with Xero, you can spot problems quickly.
How Berley can help
Going straight into using Xero without training or guidance is likely to cause issues. Sometimes a small mistake can make your accounts look like you’re missing thousands of pounds, or you can struggle to find exactly what you’ve done wrong. This is where Berley Chartered Accountants can help. As specialist small business accountants and a Silver Champion Partner of Xero, Berley has the expertise to guide you through how Xero works, and we are here to give you advice on the best online accounting software available. Together with Xero, we can make your accounts easy to understand and work with.
To find out more about how Berley London accountants and Xero can help your business, call us at 020 7788 8261 or use our Online Form.