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. Additionally, 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. Duplication

A common error is to enter a purchase invoice (bill) on Xero, but when the payment leaves the bank, a new transaction is created during reconciliation rather than allocating the payment to the invoice. This leads to a duplicate expense being recognised while an outstanding, unpaid invoice remains in reports of outstanding liabilities. To rectify this, use the ‘find & match’ function on the bank reconciliation screen to quickly search by supplier or amount prior to creating a new transaction. The same situation is also applicable to sales invoices and receipts and the same solution applies.

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 7636 9094 or use our Online Form.

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