November 10, 2021

Adam Rawling

How do i use Xero?

DIGI Accountancy are Xero Accountants in Manchester.  Despite being based in Manchester we deal with clients throughout the UK.  We are a Xero Accountancy Practice who focus on automation and quality service to our clients.  We have provided a brief but informative guide to answer the question “How do I use Xero”. If you do not want to read it all, contact us and we can chat through it. We can show you how to use Xero accounting software.

What is Xero, How do I use Xero and how easy is Xero to use?


Xero is a cloud-based accounting software aimed at small to medium sized businesses. Its variety of packages allows for both accountants and individuals to take better control of their finances and ensure a smooth and hassle-free time when dealing with those dreaded, back of the pile jobs. Xero which is now used worldwide is constantly investing in new ideas to add to its already spectacular range of features, certain to improve the efficiency of even the messiest of businesses financial tasks. For the tricks and perks on Xero or just a brief guide on how to use Xero Accounting, indulge yourself into the below.

How do I reconcile a bank account on Xero?

Connecting your bank to Xero will allow for a direct and continuous extraction of statement lines from your bank provider to your user-friendly dashboard. From this, the transactions can then be reconciled to the appropriate nominal. Reconciling the transactions can simply, be as easy as pressing a single button where there has been a matching receipt provided. Alternatively, transaction lines can be manually placed into specific categories, with the relevant VAT rate applied along with a note on the transaction for future reference. Xero also considered the fact that some businesses agree credit terms and make payment in bulk instead of direct payments against specific invoices, to account for this, a single transaction line can be allocated against the numerous invoices to which it relates. A bank reconciliation report can then be ran to ensure the balance on Xero agrees to the statement balance at the same date, any discrepancies will show and can be corrected directly from the report. The bank reconciliation feature is a simple must-have for accountants, the time saving and tidiness it provides oppose to the old fashion manual bank analysis exercises is revolutionary to say the least. With direct access to all transactions through the easy-to-use search function and a constantly updating live bank feed, the job of reconciling the bank has never been so quick and easy.

How do I use bank rules on Xero?

A brilliant little feature that Xero has, is the ability to set up bank rules when you are reconciling the bank. Transactions that occur regularly and don’t require an invoice can have a bank rule set up. This allows for Xero to fill in the details of the transaction automatically (Who, what nominal, what VAT rate) and remember them going forward so all the bookkeeper will have to do is select ‘Ok’ on the transaction line. Xero identifies the transaction based on a specific part of the description, (this can be what you desire) an example would be ‘Barclays Bank Fees’ it can be made to recognise the ‘Bank Fees’ aspect of the description and will automatically populate the cell with the desired information and allocate it to the appropriate nominal, in our case ‘Bank fees’. Without first-hand experience this may seem like it only saves a small amount of time but for businesses with massive amounts of transactions the small amount of time saved will then equate to a significant amount, time which can be better utilised elsewhere.

How do I use cash coding on Xero?

Cash coding on Xero is the reconciliation of the bank on a cash basis. Xero displays all the transaction lines in a list and the bookkeeper can simply allocate the transaction to its desired nominal, with its desired VAT rate applied. Transactions where a bank rule is already set up will appear populated in the list, with the press of a single button all of these transactions can be reconciled immediately. Cash coding offers a quick and easy approach to reconciling the bank, however, can result in potential duplications on the account. If a transaction were to be reconciled via cash coding but has a correlating invoice on the creditors report, this invoice would create a duplicate transaction as Xero pulls the data from the invoice through on an accruals basis and we have reconciled this transaction on a cash basis too. In effect, cash coding is ideal for the few transactions an invoice is not required (E.g. Bank Fees) and any transactions where an invoice was simply never provided and cannot be accessed. None the less, a beneficial tool for specific industries.

How do I raise sales invoices on Xero?

All sales invoices can be raised easily through Xero using the Xero invoice template provided. Once an invoice has been raised and approved from draft, the invoice appears on Xero’s aged debtors report until it has been reconciled or manually paid. The Xero invoice template can be edited to suit your more desired look, including the addition of a company logo and business banking details, how convenient! This invoice can be forwarded onto a customer automatically from Xero, savings bags of time, oppose to exporting them all manually before re-sending them all over individually. For larger businesses who may have a vast majority of invoices they need raising, Xero allows for users to import a manually devised spreadsheet from Excel with the invoices and their details simply listed in columns. The CSV document is loaded on to Xero and all invoices raised are added to the ‘Draft’ section for review, before being added onto the software – This is personally one of my favourite features, the accuracy such a large amount of data is processed at is nothing short of extraordinary.

How do I use purchase invoices and bills on Xero?

Similar to the ‘Invoicing’ feature, bills can be raised through Xero and will appear on the creditors report until reconciled with a transaction or paid off manually. A paper copy of the invoice you are raising can be attached to your Xero bill for reference material. Repeating bills can be set up on Xero for both purchase and sales invoices, Xero will raise the bill/invoice automatically on the desired date and can then forward to the intended recipient without anything needed from you. Credit notes can just as easily be created too and allocated directly against a bill where necessary.

Can you use multiple currencies in Xero?

Xero uses up-to-date and instant currency conversions for up to 160 currencies. Reports in Xero can be ran in the appropriate currency for more accurate reflections for trade that occurs in other countries. Through Xero, you can also see the gains and losses to be made due to exchange rate fluctuations. Specific contacts can have a default currencies set to save time when it comes raising invoices. For the use of multi currencies, the premium plan on Xero is required.

Can I submit VAT returns and / or CIS returns on Xero?

Tax returns can be submitted directly through Xero’s software. Whether it’s for CIS or VAT, submitting manually on HMRC for these returns won’t be necessary. Compatible with MTD, Xero calculates the VAT to be submitted to HMRC for your monthly, quarterly or annual returns and can do so for clients on the standard, flat-rate or cash VAT schemes. Helpfully, Xero also accounts for the recently introduced Domestic reverse charge in the construction industry scheme so accurate invoices with the correct VAT rate can be sent out confidently for construction workers also. For the submission of CIS returns through Xero, a separate add-on is needed. Once you have reconciled your bank, the CIS return can be submitted directly to HMRC with once click of a button. CIS statements can be extracted from this information for any customised period to suit your needs.

How do I use reports in Xero?

For us, the best thing about Xero is the numerous reports that can be ran for a full financial breakdown on the business’s past, present and forecasted position. From your standard P&L and Balance Sheet to the numerous Inventory, cashflow, payroll, sales, purchase, and tax reports that the software has to offer makes management of the business’s finances easier than ever. The reports are populated with information direct from the bank feed and uploaded documents on both an accruals and cash basis so upon completion of the general bookkeeping/reconciliation of the bank all these reports become populated and ready to use immediately. Some of the software’s most popular reports to follow.

Debtors and Creditors reports are processed on an accruals basis and aid a business in terms of cashflow. On Xero, the user-friendly debtors and creditors reports allow for the individual to plan when to make payments based on the ‘due dates’ segment of the report. It’s clear and understandable overview makes it easy to see what is outstanding to specific customers and how many months these are outstanding by. Xero also offers a summarised and a detailed version of both the debtors and creditors reports. The detailed version lists the specific invoices due/owed, when they’re due and allows for the individual to filter the report so it better suits the needs of them. The summarised version lists customers/suppliers and the amount that is owed in total for each period, specific invoices can be accessed from the summarised report.

Account transaction report is the perfect tool when you’re updating and maintaining the bookkeeping on Xero. The report shows all transactions/invoices that have been allocated to a certain nominal for any period you require as this report can filtered to fit your specific needs. If you were looking for a breakdown as to what makes up the ‘Direct Expenses’ figure for a specific month of the year, this report would allow you find the answer quick and easily. The report can be exported from Xero as a PDF or an excel spreadsheet for further analysis. Yearly comparatives can be added to the report, allowing for an even better illustration as to what the ‘Direct Expenses’ were made up of last year and how that compares to this period, highlighting any anomalies and raising any questions for concern.

Fixed Assets Register. For a big client especially, rolling forward the manually prepared fixed asset register can be a difficult and time-consuming job, ensuring all the formula in the spreadsheet is correct while making sure there’s no typos in the manually imported figures makes preparation of the fixed assets register one of the biggest tasks upon preparation of the annual accounts. Xero has recently added its own fixed asset register to the software which once utilised is going to save masses amount of time for the responsible individual. Rates of depreciation along with brought forward balances means the depreciation will be calculated automatically – an important time saving aspect.

What integrations can you use with Xero?

Xero offers a lot of useful third party connected apps to aid you in your process of managing your financial affairs and ensure the maximum amount of time has been saved in the whole bookkeeping process, after all, time is money. The significant list of already integrated apps is forever growing, and Xero is always looking for new ways to make the general process easier.

Dext (Previously, Receipt Bank) is one of the integrated third-party software’s that allows for business owners to electronically capture and store their receipts, so, goodbye to those shoe boxes filled with receipts and stored in the office! Accessible on both the computer and smartphone, Dext is the convenient way to record and send over your business’s invoices to your accountant with a simple photo. Once sent on Dext, the receipt can be posted to the appropriate nominal on Xero with the applicable VAT rate applied, these invoices/receipts will then appear on the Xero creditors report until paid and reconciled via the bank reconciliation. Another useful tool offered by Dext is the analysis of those dreaded bank statements. Simply, upload you bank statements and allow the automated software to extract all the data to your desired document type, this cuts out the likely human error we all face when manually analysing and saves bags of time in the process. Dext offers 3 pricing packages (Business Plus package, Premium Package and the Enterprise package) which can be paid monthly or annually, offering a pleasant degree of flexibility for users. Any problems with Dext can be dealt with immediately, on the software’s live chat feature to speak to a member of staff.

In addition to Dext comes another fantastic software provided by Dext, in the form of Dext Precision. (Previously Xavier) Dext Precision is a business analytical tool kit for Xero users. It provides accurate data and proactive insights to assess a business’s complete financial performance and ensures a high standard of bookkeeping is maintained with the ‘Health Score’ feature. A health score is given to each client on Dext to assess the standard of the bookkeeping and the amount of work that is still to be done on that client in order to reach the maximum score, the information comes directly from Xero it’s self and can be accessed directly through Precision with a single click. As well as offering numerous financial reports, Precision can be used as a great pricing tool. It shows a business’s Xero activity (How many bank transactions per month, how many invoices are uploaded per month, manual journals on the account and numerous others) which is a great basis to use before pricing someone for a bookkeeping job. Precision is predominantly for accountants/bookkeepers oppose to individuals as it offers comparisons between numerous clients and prompts the preparation of VAT returns, Checklists, and accounts as the deadline approaches (An individual organisation would already have an understanding of the sort of information Precision offers) When used correctly, Precision can offer a great overview on all clients general bookkeeping and Xero performance.

Pleo is a company card provider that automates expense reports and connects directly to Xero. Currently, Pleo is the number 1 expense tool in Europe and the fact it connects directly to Xero is a match made in heaven. Cards can be issued to staff members with a limit on for business expenditure, upon purchase, you will be prompted by the Pleo app to take a photo of the receipt which will go directly to Xero for a bank reconciliation. With a live bank feed and instant receipts from the Pleo app, the reconciliation of this bank account can be extremely quick. Expenditure on the Pleo cards links directly to all Xero reports so all figures will be included in the business financial statements – Hassle free! Pleo comes with 3 pricing plans. Firstly, the free plan, offering up to 5 users, automated expense reports, digital receipt capture, bill processing and access for external bookkeepers. Secondly, the pro plan with, Individual spending limits, real-time analytics and automated subscription overview. Finally, the premium plan including, a dedicated account manager, custom onboarding process, on-site training and business travel insurance – Pro and premium plans include all features of the plan before it.

Gocardless makes it easy to collect both recurring and one off payments directly from your customers bank account. Oppose to chasing payments from customers, Gocardless saves you the hassle and collects payments automatically upon your demand via direct debit. ‘Gocardless collects up to 97.5% of payments successfully first time’. [] This integrates directly to Xero and is shown as a separate bank account on your Xero dashboard. All Gocardless transactions are reconciled automatically with the correlating invoice and the transfer to your business bank is also reconciled, to put it simply, once you have raised your invoice you don’t have to do anything but watch the magic happen.

How much does Xero cost?

Xero offers 3 pricing plans. Whether you’re a new business, sole trader or an established limited company, Xero has a plan for all. The starter pack includes the following features;

Send quotes and 20 invoices
Send 5 bills
Bank reconciliation
VAT returns
CIS calculations
As well as the above, the standard package includes;

Unlimited quotes and invoices
Unlimited bills
Bulk bank reconciliation
Short-term cashflow and business snapshot
And finally, the premium package, including the above and;

The use of multiple currencies

All packages on Xero have the option of a variety of extra add-ons, dependant on a businesses needs. From Payroll to CIS to projects, Xero really does aim to satisfy every business type.

DIGI are Xero accountants meaning we can support you with anything Xero!

All information is correct as at 10 November 2021.

Contact us
Call: 0161 250 7500
WhatsApp: 07491035984


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