Efficient Accounting with Xero: The definitive guide to optimizing your accounting with proven techniques and best practices

BIRMINGHAM—MUMBAI

Efficient Accounting with Xero

Copyright © 2023 Packt Publishing

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First published: April 2023

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Published by Packt Publishing Ltd.

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ISBN 978-1-80181-220-7

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To my wife Wendy Kimelman and my daughter Abigail for keeping me going and encouraging me to keep writing on weekends after putting in long hours each week. Thank you for your patience and for being my biggest cheerleaders.

– Jay Kimelman

Foreword

Finding people in life to inspire you is a challenge. Finding people to both inspire and challenge your perceptions is even more difficult. Finding people to inspire, challenge, teach, and support you is the hardest. Jay Kimelman is one of the rare humans that has the ability to do all of those things. Jay’s passion shines through in his incremental innovations within the accounting world. He foundationally understands the industry, the technology, the mindsets of the people, and the needs of the small business world.

I first met Jay at a Xerocon almost 10 years before the publishing of this book. I was a young, queer, female business owner in my late 20s challenging everyone in sight for any reason. I lived the part of the I know tech better than you because I could program a basic API integration. I was strong-headed, arrogant, and skeptical – the worst combination. Jay had been around the Xero ecosystem longer than me. He was a Certified Public Accountant (CPA) long before me. He looked like a more traditional accountant, and I discounted him based on appearances. Boy, was I wrong. He took every challenge I gave in his stride and thoughtfully provided insight into a different perspective. He was genuine. He was authentic. He was kind in his approach. A few years later, I was asked to become a Xero National Ambassador and work alongside Jay in that role. He reintroduced himself humbly with, I’m not sure if you remember meeting me, but…. Jay and I built a rapport based on mutual respect, an innovative mindset, and an underlying understanding that the tech we employed could do more. Fast forward a few years, and Jay and I now work side by side on the same team, building High Rock Accounting together.

Jay regularly finds ways to use the tools at his disposal, Xero being one, to build efficient practices. He challenges assumptions and builds logical solutions for firms to better service clients. Reading this book will provide the insights of an understated badass in our industry who brings massive value with his approach.

Liz Mason

Founder and CEO, High Rock Accounting

Contributors

About the author

Jay Kimelman is a CPA and is the director of technology and e-commerce industry lead for High Rock Accounting. Before joining High Rock Accounting in January 2022, Jay was the founder and chief executive officer (CEO) of The Digital CPA from its inception in November 2011.

Jay is a workflow process and workflow automation expert. Jay enjoys working with other accounting and tax professionals in building automation to create efficiency in processes.

Jay received the Xero Most Valued Professional award in 2016 due to his support of the cloud accounting movement. He has also served as a National Xero Ambassador since 2016.

I want to thank the people who have been close to me and supported me, especially my wife Wendy and my daughter Abigail.

About the reviewer

M.D. Khurshid Alam is a Xero partner, Pro-Advisor, and senior bookkeeping manager for a renowned bookkeeping firm in London, UK. He manages the firm’s accounting clients and businesses to provide cloud accountancy, VAT, payroll, tax, and year-end accounts. Khurshid graduated from Jagannath University, Bangladesh with a bachelor's degree in business administration, management, and accounting and completed an MBA from the same university. He has served clients ranging from small to limited companies for the last 5 years. He is also the founder and CEO of Khurshid Accountancy, a cloud accountancy firm. He currently provides consultancy to different cloud accounting apps and works as a reviewer.

Table of Contents

Preface

Part 1: Hitting the Ground Running

1

Xero Basics – Subscriptions and When to Use Them

A bit about Xero

Business subscription plans

Business subscription plan comparisons

Partner subscription plans

Partner subscription plan comparisons

Summary

2

Exploring Bank Feeds – the Heart of Xero

Why bank feeds?

Setting up your bank feeds

Balancing the bank feed

Summary

3

Setting Up Your Organization’s Financial Settings in Xero

Why are settings in Xero so important?

Your first major Xero decision – the COA

Importing your chart of accounts

Maneuvering through the Chart of accounts screen

Tracking categories

Setting up tracking categories

Other settings that require attention

Organizational details

Let’s add a user

Subscription and billing

Financial settings

Summary

4

Restarting with the Fresh Start Method

When to use Fresh Start

Where do we find our beginning balances?

Importing your beginning balances

Importing using the COA

Data entry using conversion balances

Bank feed time

Summary

5

Conversion to Xero Made Easy

When to convert versus using The Fresh Start method

Automating your Xero conversion with Jet Convert

Preparing for conversion by looking into the prerequisites

Preparing your QBDT file

Preparing your QBO file

Time to start the conversion

Converting your QBDT file

Converting your QBO file

Summary

Part 2: Handling the Day-to-Day Processes

6

Recording and Reconciling the Bank

The bank feed basics

No bank feed? Not a problem – import it

Rules, rules, rules

Using Xero to your advantage

Cash coding

Reconciling that account

Summary

7

Invoicing and the Sales Process

Products and services

Setting up invoices (and other forms)

Quoting your opportunities

Time to send the invoices

Repeat

Void

Copy to

Edit

Add Credit Note

Share invoice

Getting paid in Xero

Applying payments from the bank feed

Summary

8

Managing Bills and Purchases with Procure-to-Pay in Xero

Exploring the Purchase Order

Processing bills and the purchase process

Paying bills is super easy

Summary

9

Using Xero on the Go

Xero mobile on the go

Xero features on the go

Battle of the apps in different operating systems

Summary

Part 3: Closing Out the Accounting Period

10

Managing Fixed Assets in Xero

Exploring fixed assets

Adding assets to Xero

Depreciating those assets

Disposing of assets

Summary

11

All You Need to Know about Manual Journals in Xero

The manual journal

Xero’s rules for creating manual journals

Getting into the manual journal

Creating manual journals

The repeating journal entry

Importing your journal

Summary

12

Correct Your Mistakes with Find and Recode

The basics of Find & Recode

Find, the ultimate Xero search tool

Correcting mistakes with Recode

Summary

Part 4: Reporting – Knowing About the Performance of Your Business (KPIs)

13

Running and Customizing Basic Reports in Xero

Reporting in Xero

Saving reports in Xero

Summary

14

Business Analytics with Business Snapshot and Short-Term Cash Flow

Analytics in Xero

Short-term cash flow

Business snapshot

Summary

15

Creating Custom Reports in Xero Using the layout editor

Exploring the layout editor

Customizing the basic report

Starting from a blank slate

Saving your reports

Summary

Part 5: For the Advisor

16

Run Your Practice with Xero HQ

What is Xero HQ?

Clients in Xero HQ

Explorer details in Xero – what is it exactly?

What is Ask, you ask?

Staff in Xero HQ

Practice

Summary

17

Exploring Practice-Wide Report Templates

What are Report templates?

Editing Report templates

Assigning report codes

Using Report templates

Summary

18

Exporting Your Data and Reports Out of Xero

Exporting Xero reports to expand their role

Exporting accounting data to make your life easy

The Schedule C report for sole proprietors

Using Trial Balance apps to make tax time easier

Summary

19

Increasing Your Powers with Apps and Xero

What are apps that are built for Xero?

Why use apps with Xero?

Connecting apps to Xero

What apps should I use with Xero?

Summary

Index

Other Books You May Enjoy

Preface

Efficient Accounting with Xero is the ultimate how-to guide to get started using Xero for your small business or using Xero as an anchor in building your bookkeeping or accounting practice. I have used Xero since the early days in the US, starting my Xero journey in 2012. I have watched Xero grow since then and have been a participant in guiding the direction of the product. I can say without a doubt Xero is the best accounting software for your small to medium business (SMB) or your accounting/bookkeeping practice servicing SMB clients.

Who this book is for

This book was written to guide SMB owners in performing their own bookkeeping and accounting professionals who will build or expand their businesses using Xero. There are no technical prerequisites, but I assume you have a basic understanding of accounting and bookkeeping principles if you are performing services for clients.

What this book covers

Chapter 1, Xero Basics – Subscriptions and When to Use Them, is a primer on Xero subscriptions, the costs, and when to use each one.

Chapter 2, Exploring Bank Feeds – the Heart of Xero, discusses what bank feeds are and how central they are to Xero operations.

Chapter 3, Setting Up Your Organization’s Financial Settings in Xero, talks about setting up the basics in Xero and is a good foundation for a fast start.

Chapter 4, Restarting with the Fresh Start Method, explores the best conversion method in most cases.

Chapter 5, Conversion to Xero Made Easy, discusses how you can fully convert to Xero from QuickBooks if you need transactional history.

Chapter 6, Recording and Reconciling the Bank, explores reconciling the bank, the core process in Xero.

Chapter 7, Invoicing and the Sales Process, shows you why invoicing is the number-one key to cash flow.

Chapter 8, Managing Bills and Purchases with Procure-to-Pay in Xero, discusses how bills and payments are also key to the business cash flow picture.

Chapter 9, Using Xero on the Go, talks about using the Xero mobile app on the go and how it is easy and efficient.

Chapter 10, Managing Fixed Assets in Xero, talks about managing your assets, from addition to disposal and all that comes in between.

Chapter 11, All You Need to Know about Manual Journals in Xero, talks about how Xero makes journal entries easy.

Chapter 12, Correct Your Mistakes with Find and Recode, shows how Find and Recode was a game-changer and it is a staple for a Xero advisor.

Chapter 13, Running and Customizing Basic Reports in Xero, talks about Xero reporting basics and creates a good foundation.

Chapter 14, Business Analytics with Business Snapshot and Short-Term Cash Flow, explores the business analytics and cash flow tools every small business owner must use.

Chapter 15, Creating Custom Reports in Xero Using the Layout Editor, teaches you about taking Xero reports to the next level with Layout Editor.

Chapter 16, Running Your Practice with Xero HQ, shows how Xero HQ is a powerful tool.

Chapter 17, Exploring Practice-Wide Report Templates, shows how report templates are powerful firm-wide reporting tools.

Chapter 18, Exporting Your Data and Reports Out of Xero, focuses on how getting data out of Xero is as important as getting the data in.

Chapter 19, Increasing Your Powers with Apps and Xero, shows how while Xero on its own is great, Xero with apps is amazing.

To get the most out of this book

First, relax; Xero is going to make your life easy. If you are a business owner and you do not already have Xero, start a trial. It is free for 30 days and is fully functional. If you are an accounting professional, you too should have Xero set up, but if you do not, you should start a trial but do sign up to be a partner and gain access to your free firm account. It will give you all of the tools we will explore in the book. Remember that not all feaures will work if you are using a Xero Demo company.

Sign up for a Xero Trial here: https://www.xero.com/us/signup/.

Sign up to become a Xero Partner: https://www.xero.com/us/partner-programme/sign-up/.

I suggest reading through the book, and then grabbing your laptop, tablet, or phone, and then going chapter by chapter, using the examples, and then seeing how they apply to your business.

Download the color images

We also provide a PDF file that has color images of the screenshots and diagrams used in this