Xero Accounting Software

Xero is one of the best accounting software for small/medium businesses.

The cloud-based Xero accounting software allows the integration to over 700 third-party apps, and offers the ability to handle payroll.

With the Xero app, you can manage all the invoicing (income) & billing (expenses) of customers & vendors on your mobile devices.

Let’s go through the setup phase and operation phase of Xero.

https://www.xero.com

Small Business Guide (Setup Phase) for Xero Accounting Software

• Set up an organization
• Invite users
• Create and/or Import a chart of accounts
• Set up invoices
• Set up sales tax rates
• Set up and/or Import products and services
• Create and/or Import customers
• Create and/or Import suppliers
• Import supplier/vendor bills
• Set up account balances
• Set up multiple currencies

Small Business Guide (Operation Phase) for Xero Accounting Software

Create Invoices. Manage Income.

• Invoice a customer
• Create a credit note
• Create an online quote
• Receive customer payments
• Create accounts receivable aging report

Create Bills. Manage Expenses.

• Create expense claims
• Create a bill
• Mark bills paid online
• Pay bills with a check
• Create accounts payable aging report

Manage Bank Transactions. Manage Credit Card Transactions.

• Set up bank feeds
• Enter credit card transactions and bank transactions into Xero (manually)
• Reconcile credit card transactions and bank transactions

Create Financial Reports in Xero.

• Create an income statement, a balance sheet report, and a cash flow statement

Setting up an organization involves entering your company contact information (email address and telephone number), tax ID, and business mailing address.

The organization information you have set up will be used across Xero on invoices, bills, and tax forms that you are to create.

Often you are working with other roles including bookkeeper, business partner, or CPA.

You can grant access (of the organization data in your Xero account) to each person with different roles (such as Advisor, Standard, Invoice Only, Read Only, etc).

A chart of accounts is for organizing your income and expenses in the correct categories which will result in accurate and reliable financial statements.

You can import an existing chart of accounts into Xero, or create a chart of accounts from scratch by adding, modifying, and deleting accounts in Xero.

Xero invoicing lets you manage your accounts receivable and accounts payable balances.

When setting up invoicing:

• Create a branding theme (template) for all invoices, quotes, purchase orders, and receipts.
• Set up payment terms for customers and suppliers to get notification on unpaid invoices and bills.

Set up sales tax rates for all jurisdictions that you need to collect sales tax for.

Use the sales tax lookup feature if you do not know the sales tax rate that you need to charge a customer.

Before creating quotes, invoices, or purchase orders in Xero, set up your products and services.

With each product/service, you will enter a description, cost, and quantity.

Or you can import all the products/services (from an old accounting software you were using) into Xero, without having to re-enter all the product/service information.

Before billing your customers, enter the contact details for all customers with payment terms (and/or custom discounts).

Or you can directly import all your existing customer details from an old accounting software you were using.

Enter the contact details of all your suppliers/vendors before paying your bills. The contact details include address, email, and telephone number.

Set up custom discounts and payment terms of the suppliers/vendors (if they are applicable).

Or you can directly import all your existing supplier/vendor details from an old accounting software you were using.

You may have to bring over supplier/vendor bills from an existing accounting system to Xero. You won’t have to manually enter the information, but can all the bills.

You need to bring over your existing account balances from your old accounting software when converting to use Xero.

Your business may have to invoice customers, pay suppliers, or transfer money from/to bank accounts in your local currency and/or any other currencies, when you do business with companies within your own country and in other countries. Set up the multi-currency feature.

When you provide services or sell products to your customers, Xero can make it simple to turn an existing quote, bid, or estimate into an invoice for billing your customers.

When you issue a refund to a customer because your he/she returns product, or you are to reduce the amount to bill on an invoice, you will create a credit note. In Xero, this credit note has to be applied to an existing invoice.

When your customer is in the consideration phase of possibly buying your product, but has not bought the product, you can create a quote and have it sent to the customer.

The quote will include the detailed description and cost of the product.

At a later stage when the customer has made up his/her mind to purchase the product, you can turn the quote into an invoice.

In Xero, you should record all the customer payments for your accounts receivable balance to remain up-to-date.

Payments received from customers may be recorded as full payments, partial payments, or customer deposits.

Payments received and credit notes will contribute towards the accounts receivable.

The accounts receivable aging report shows the receivable balances i.e. amount of money your customers owe you with the length of time it has been outstanding.

You can use the accounts receivable aging report follow up with customers who have not paid their invoices by the due date.

Employees in a company may have to get reimbursement for expenses (such as business travel) that they have paid upfront with their personal account.

In Xero, you can create an expense claim to reimburse an employee for business expenses.

In Xero, you can keep track of all your bills. This way, you can stay on top of your accounts payable balances i.e. what you owe to suppliers and creditors.

You can create a bill left off and enter all your bills to update Xero with the payment information so your accounts payable balance is up-to-date.

You can write a check directly from Xero to pay your bills.

Xero will automatically mark the bill as paid and update your accounts payable and bank account balances.

The accounts payable aging report shows the amount of money (i.e. bill and expense claims) you owe suppliers and other creditors, with the length of time it has been outstanding.

You may be manually entering transactions one by one which may take up too much time.

But when you connect your bank and credit card accounts to Xero, all the transactions will automatically be downloaded into your Xero account.

To enable quick matching of deposits or check transactions (including bank service charges, debit and credit card charges, ATM withdrawals, and tax refunds) in Xero, all the invoices and bills must be entered before reconciliation.

You need to categorize the bank transactions and credit card transactions in Xero, and run a bank reconciliation so your bank account and your books are in balance.

Income statement, balance sheet, and cash flow statement are the three key financial reports in accounting.

The income statement shows the health of your business.

The balance sheet report shows the total assets, liabilities, and equity for your business.

The cash flow statement gives you insight into your overall cash flow and shows where your business stands.

I have written the Chinese version of this Xero Accounting Software article.

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• Xero Accounts Receivable Aging Report