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FNSACC304

Conduct business activities using a computerised accounting system

Xero Second Edition ISBN Number: 978-1-925782-66-0

Part Number: 504

Version: Xero 20.01

AUTHOR – Kerryn Maguire

Kerryn has been working with accounting software products for over twenty years. Originally working from 1994 as an accountant with small business when accounting software became mainstream. Kerryn then focused on providing consulting and training services to small business in particular. Expanding from this into to providing curriculum based resources to TAFE and private RTOs. From this she established Microstar Publishing and more recently incorporated OfficeLink Learning to provide a wide range of resources for the Accounting and Business Services Certificate courses. Kerryn has a long association with many TAFEs and RTOs across Australia. Kerryn’s fundamental aim is to provide resources that are easy to understand while providing a practical application of skills acquired. Kerryn also co-authors two titles for Cambridge University Press which are in their 4th Edition – first published in 2000. Kerryn has considerable experience and knowledge:

Bachelor of Applied Science Mathematics Diploma of Education Graduate Diploma of Accounting CRI: Criterion Referenced Instruction Member of Institute of Certified Bookkeepers Member of VELG

Reproduction and Communication for educational purposes

The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10% of the pages of this publication, whichever is greater, to be reproduced and/or communicated by any educational institution for its educational purposes provided that the educational institution (or the body that administers it) has given remuneration notice to the Copyright Agency Limited (CAL) under the Act. For details of the CAL license for educational institutions contact:

Copyright Agency Limited Level 15 233 Castlereagh Street Sydney NSW 2000 Telephone: (02) 9394 7600 Facsimile: (02) 9394 7601 Email: [email protected]

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All Rights Reserved

© Copyright 2019 OfficeLink Learning Version Xero 20.01

No part of the contents of this book may be reproduced or transmitted in any form or by any

means without the written permission of OfficeLink Learning. All registered trademarks or service

marks are the property of their respective owners.

While care has been taken in the preparation of this Training Tool, OfficeLink Learning, the

developers do not accept any liability for any damage or loss (including indirect and

consequential loss) incurred by any person as a result of relying on the information contained in

this material. This tool should not be regarded as professional advice and it should not be relied

upon in any important matter without obtaining appropriate advice relevant to your situation.

It is the Registered Training Organisation’s responsibility to validate the mapping of this tool to

the performance criteria.

Trademarks and Acknowledgements

All terms or products mentioned in this manual that are known to be trademarks have been

acknowledged. OfficeLink Learning cannot attest to the accuracy of this information. Use of a

term in this manual should not be regarded as affecting the validity of any trademark.

Software Description

This course has been designed for users of the Xero software. All attempts have been made to

provide current information. Instructions are correct at the time of writing.

The case study in this material uses fictional information.

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Contents

© Copyright 2019 Learner Link iii

Contents Unit 1 Introduction .................................................................. 1 Purpose of this User Guide .................................................................... 1

Accounting software used ..................................................................... 2

Prerequisites .................................................................................... 2

Delivery .......................................................................................... 2

Duration .......................................................................................... 2

Relationship to Competency Standards ...................................................... 2

What you will need ............................................................................. 3

Conventions used in this User Guide ......................................................... 3

Download Student files ........................................................................ 4

Symbols used in this User Guide .............................................................. 5

Access your Hot Bod Xero Organisation ...................................................... 6

Set up 2 Step Authorisation ................................................................... 8

The Demo Organisation ....................................................................... 14

The Getting Started Panel and Help Centre ............................................... 16

The Tab Menus ................................................................................. 17

Sales ............................................................................................. 17

Contacts ......................................................................................... 19

Reports .......................................................................................... 21

Logout of Xero ................................................................................. 22 Unit 2 Introducing Bookkeeping ................................................ 23 The Accounting System ....................................................................... 24

Accrual versus Cash Accounting ............................................................. 25

Accrual Accounting and Balance day Adjustments ........................................ 26

Bookkeeping .................................................................................... 27

Bookkeeper’s Responsibility ................................................................. 28

Accountant’s Responsibility .................................................................. 30

Double Entry Bookkeeping .................................................................... 31

Transaction Categories ....................................................................... 32

Account Groups: Assets, Liabilities and Equity ............................................ 33

The Accounting Equation ..................................................................... 34

Account Groups: Expenses and Revenue ................................................... 36

The Chart of Accounts ........................................................................ 39

Goods and Services Tax ....................................................................... 41

The Invoice and Tax Invoice.................................................................. 44

Source Documents ............................................................................. 46

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Contents

iv © Copyright 2019 Learner Link

Policies and Procedures for Business ....................................................... 48

Why Use Xero .................................................................................. 49

Security and the Accounting System ....................................................... 50

Unit 3 Accessing an Organisation in Xero ..................................... 53 Case Study ...................................................................................... 54

Access the Xero organisation file ........................................................... 58

Organisation Settings ......................................................................... 59

Financial Settings ............................................................................. 62

Tax Rates ....................................................................................... 63

Display Advanced Tax Rates ................................................................. 65

Change User Role to Adviser ................................................................. 66

Unit 4 Working with the Chart of Accounts .................................. 69 The Chart of Accounts ........................................................................ 70

Account Types ................................................................................. 70

The Chart of Accounts ........................................................................ 71

Changing account details..................................................................... 73

Change an Account Code and Type ......................................................... 75

Change Tax Rate for an Account ............................................................ 76

Create a New Account ........................................................................ 77

Deleting an account ........................................................................... 80

Create a Trial Balance Report ............................................................... 82

Unit 5 Using Contact Records ................................................... 85 Types of Contacts ............................................................................. 86

Add a New Contact ............................................................................ 89

Set up Default Terms for Contacts .......................................................... 93

Edit an Existing Contact ...................................................................... 96

Search and Find ............................................................................... 97

Sort Contacts................................................................................... 98

Delete/Archive a Contact .................................................................... 99

Restore an Archived Contact ............................................................... 100

Privacy ......................................................................................... 101

Unit 6 Using Items ............................................................... 103 Overview ...................................................................................... 104

Create a Simple Inventory Item for Sale .................................................. 107

Create a Tracked Inventory Item .......................................................... 108

Search and find items ....................................................................... 110

Unit 7 Spend Money: Purchases .............................................. 113 Overview ...................................................................................... 114

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Contents

© Copyright 2019 Learner Link v

Enter payments through Spend Money ..................................................... 114

Checking Documents for GST Component ................................................. 118

GST Free Purchase: GST Free items ....................................................... 118

GST Free Purchase: Supplier not registered for GST .................................... 120

Purchase Part GST and Part GST Free ..................................................... 122

Purchases Dashboard ......................................................................... 125

Add a New Bill ................................................................................. 126

Repeating Bills ................................................................................ 130

Paying Bills .................................................................................... 133

Part Payment of Bill .......................................................................... 134

Pay Several Bills Together for One Supplier .............................................. 135

Email Remittance Advice .................................................................... 137

Check Transactions ........................................................................... 138

Edit a Transaction ............................................................................ 139

Enter Asset Purchase by Credit Card in Spend Money ................................... 142

Unit 8 Create Invoices & Receive Money.................................... 145 Overview ....................................................................................... 145

Create a New Invoice ........................................................................ 146

Email an Invoice .............................................................................. 148

Sales Dashboard ............................................................................... 150

Edit a Draft Invoice and Approve ........................................................... 151

Repeating Invoices ............................................................................ 152

Receive a Payment ........................................................................... 153

Payment of more than one invoice – Batch deposit ..................................... 156

Enter Invoice and Receive Payment in One Step ......................................... 157

Cash Sales Receipts using Receive Money ................................................. 158

Credit Notes and Refunds ................................................................... 161

Create and Pay a Refund .................................................................... 163

Create a Credit Note and Apply to Another Outstanding Invoice ...................... 165

Apply Existing Credit Note to a new Invoice .............................................. 167

Unit 9 Bank Reconciliation .................................................... 171 Overview ....................................................................................... 171

Account transactions tab .................................................................... 172

Bank Statements .............................................................................. 173

Things to do prior to a Bank Reconciliation ............................................... 174

Importing a Bank Statement ................................................................ 175

The Reconcile tab ............................................................................ 177

Find and Match ................................................................................ 179

Unreconciling a Transaction ................................................................ 184

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Contents

vi © Copyright 2019 Learner Link

Create Suggested Transactions and Match ................................................ 185

Create New Transaction ..................................................................... 186

Bank Rules ..................................................................................... 187

Edit a Bank Rule .............................................................................. 192

Cash Coding ................................................................................... 193

Recording Payments while Reconciling ................................................... 194

Entering Bank Fees ........................................................................... 198

Split Line Transaction with partly Private Spend ........................................ 199

Transferring between Accounts ............................................................ 201

Discuss tab – when further clarification is required ..................................... 202

Bank Reconciliation Report ................................................................. 203

Unit 10 Petty Cash ................................................................ 209 Overview ...................................................................................... 210

Petty Cash documents ....................................................................... 211

The Petty Cash account ..................................................................... 215

Enter a Transfer to Petty Cash ............................................................. 216

Enter Petty Cash Entries Using Spend Money ............................................. 218

Using the Petty Cash Journal to Reconcile ............................................... 222

Enable Mark as Reconciled .................................................................. 223

Disable Mark as Reconciled ................................................................. 225

Unit 11 Reports .................................................................... 227 The Balance Sheet Report .................................................................. 228

Create a Trial Balance Report .............................................................. 231

Create a Profit and Loss Report and Customise .......................................... 233

Aged Receivables Report .................................................................... 237

Aged Payables Report ........................................................................ 238

GST reporting ................................................................................. 239

Check Activity Statement Settings ......................................................... 240

Run the Simpler BAS on a Cash basis ...................................................... 241

Run the Simpler BAS on an Accrual Basis ................................................. 243

Difference between Cash and Accrual GST Reports ..................................... 244

The Transactions by Tax Rate Report ..................................................... 245

Reports for 31 Aug 2018 ..................................................................... 249

Unit 12 Practice Exercise ....................................................... 259

Appendix A Mapping Matrix ................................................... 281

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Unit 2: Introducing Bookkeeping

© Copyright 2019 Learner Link 23

Unit 2

Introducing Bookkeeping

This unit covers the components of successfully creating and maintaining a computerised accounting system and the accounting concepts that form the basis of the system.

Learning Outcomes

In this unit you will read about

What an Accounting System is

The concepts of Cash and Accrual accounting

Account Groups

Debits and Credits

Relevant legislation and compliance requirements

Requirements for a tax invoice

Source documents

Organisational policies and procedures

Appropriate personnel

Physical and digital security

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24 © Copyright 2019 Learner Link

The Accounting System

The title of this unit is Set up and operate a computerised accounting system. What is an accounting system and why is it necessary?

Business transactions that occur in purchasing and providing goods and services are settled by the receipt or payment of money. These transactions are classified into groups of related receipts and expenses. The recording of these transactions in an accurate and timely manner result in relevant and reliable financial reports.

Each transaction is:

1. Identified – for example an invoice from a supplier arrives – it is

determined that it is a valid invoice for goods supplied

2. Assembled – for example the supplier’s invoice is forwarded to the

accounts payable department

3. Recorded – for example the Accounts payable department record

the supplier invoice

4 Reported – for example the supplier invoice amount is reported as

an expense and possibly as a gst credit

Source documents trigger the recording of transactions. Source documents will be looked at in more detail later.

The reports generated enable managers, business owners and other stakeholders to monitor the financial performance and to make decisions about the direction of the business.

How well an accounting system for a business works depends on the regular and accurate recording of business transactions.

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Accrual versus Cash Accounting

An accounting system can be on a cash or accrual basis.

A Cash accounting system - this means that only cash that is actually received and payments that are actually made are entered in the Accounting data file. (Bills from suppliers are only entered when the account is paid.)

The alternative is an Accrual Accounting system, where all sales (both cash and credit), and all expenses (both paid and unpaid) are entered in the data file. The accrual system results in more accurate reporting of business trends because there is a better match between revenue and expenditure.

As an example a business invoices $3000 for work completed in July but the customer does not pay until August. The business invoices another customer $5000 for work completed in August and that customer just happens to pay the invoice in August. The two tables below indicate how the income would be reported in each accounting system. Both systems are correct but the Accrual table is a better indicator of when work is completed.

Cash Accounting Accrual Accounting

July August July August

Income $0 $8000 Income $3000 $5000

If we add to our example materials purchased by the business to complete the work. The business pays for materials as they are used for performing the work.

Cash Accounting Accrual Accounting

July August July August

Income $0 $8000 Income $3000 $5000

Expense $1200 $2200 Expense $1200 $2200

Net -$1200 $5,800 Net $1800 $2800

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Accrual Accounting and Balance Day Adjustments

Balance Day Adjustments are another feature of accrual accounting which provide a better determination of matching revenue and expenditure.

For a very simple example a business purchases a truck to use in the provision of services to customers. The truck costs $50,000. However it will be used for 5 years in the business. Depreciation is used to apportion the cost of the truck over five years so that each year $10,000 is entered as a depreciation expense as opposed to having just one expense of $50,000 in the first year. The apportionment is a balance day adjustment.

A balance day is at the end of a reporting period which at the very least is at the end of a financial year, 30 June. Other balance days may be at the end of a quarter of a financial year, September 30, December 31, March 31 and June 30, or they may occur at the end of each month if that is the reporting requirement of the business stakeholders.

Balance day adjustments include but are not limited to:

• Depreciation

• Prepaid adjustments

• Work in progress adjustment

• Write off adjustments

• Re-allocation of fund adjustments

• Accrued expenses

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Bookkeeping

Bookkeeping is the process used to keep an accurate record of a business's transactions. We have already established that a business must keep records. The daily transactions of the business are written into books of record. These books may be either active or inactive. Before the advent of accounting software the books were in hard format, now of course they are more likely to be digital.

Bookkeeping is the process used to keep accurate records of a business’s transactions

The books are where the record of daily transactions of a business are kept.

Active books are those that relate to the transactions occurring in the current accounting period. An accounting period is the length of time — a week, month, or financial year — used by a business to assess its financial position.

Inactive books are those that relate to the transactions occurring in a previous accounting period.

Accounting period is the length of time reflected in financial statements and distinguishes between active and inactive books.

What is happening when we record business transactions. Generally, we use the double entry bookkeeping method. The Bookkeeping Entity principle states that the records of the business are always kept from the business point of view.

For a business we can say that transactions can be grouped into four types:

Sales (Tax Invoice issued)

Purchases (Tax Invoice and Invoice received)

Payments (Cheque, Cash, Credit Card, Electronic Funds Transfer)

Receipts (Cash, Cheque, Credit Card, Electronic Funds Transfer)

The ability to use software to make these entries is an enormous time saver. However, you still need to have understanding of what is happening. This will help you to be confident in the information extracted in reports from the transactions.

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Functions of bookkeeping

A business must keep records by law. This enables the ATO to assess the amount of tax the business must pay. There are other interested parties who also need to be provided with information.

Some of the interested parties are owners, management, shareholders/investors, the bank, suppliers, the public, and of course the taxation department.

Owners and management use the information provided by the records to assist in managing the business and controlling the income and expenditure of the business.

Therefore, the functions of bookkeeping can be summarised as:

• to provide information to interested parties

• to use the information provided to simplify business decision making, and as a guide to planning for the future.

Bookkeeper’s responsibility

It is important for the bookkeeper to be aware of the responsibilities involved in keeping the records of a business. A bookkeeper must:

a. Keep the books neat and legible or in an organised electronic format. Why? Because other people will need to read them (managers, auditors and accountants).

b. Use proper correction techniques (if handwritten). Always neatly cross out, correct and initial correction. Why? Because it may be necessary for other people interpreting or auditing the books to track or inspect the original entry. Correction tape can be used when correcting totals.

c. Be consistent in the presentation of the records. Why? There are variances in style of presentation. Develop your own style and abbreviations but be consistent. It is also easier for other people to read your books or interpret your electronic data. Sam

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d. The bookkeeper must also follow a professional Code of Conduct. Set out below are some of the Fundamental Principles set down by the Institute of Certified Bookkeepers (www.icb.org.au).

e. Confidentiality

You can visit the Tax Practitioners Board website to learn more about bookkeepers’ responsibilities (www.tpb.gov.au).

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http://www.icb.org.au/

http://www.tpb.gov.au/



Accountant’s responsibility

It is important for the bookkeeper to know that accountants have different responsibilities.

An accountant’s ethical responsibility is to those who rely on his/her work. An accountant has the responsibility for validity of the financial statements they work on, and must perform their duties in accordance with principles, standard and laws set out by their state and country. These could include (but are not limited to):

• Australian Taxation laws and legislation

• Australian Competition and Consumer Commission (ACCC)

• The Australian Accounting Standards

• The Australian Auditing Standards.

Common duties and responsibilities performed by accountants include:

• Preparation of profit and loss statements and monthly closing and cost accounting reports.

• Compilation of financial entries for ledger accounts using business transactions, e.g. accounts, payroll, invoices

• Establish, maintain and coordinate the implementation of accounting and accounting control procedures.

• Monitor and reviewing accounting and relation system reports for accuracy and completeness.

• Resolve any discrepancies.

• Recommend, develop and maintain financial data bases, computer software systems and manual filing systems.

• Interact with internal and external auditors in completing audits.

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Double Entry Bookkeeping

Double entry bookkeeping is the method used in Australia to record business transactions. The double entry refers to two sides of an entry – a debit side and a credit side. A balanced record is where at least one account is debited and at least one account is credited. The value of the debit entries must equal the value of the credit entries. For example suppose Clara is putting another $5000 of her savings (which is capital contributed) into her business. She puts the money into the business account so the Business account balance increases (debit) and the Capital contributed account increases (credit).

Balance is a key word. Debits always equal credits in one double entry.

The purpose of double entry accounting is to reflect where money comes from and where it goes. A transaction is any event that requires an entry in the books – for example, buying equipment or goods or services, selling goods or services, paying rent, paying wages etc. When you record $200 deposited in your business account you are completing only one half of the transaction. In accounting terms, you will need to indicate also where this money originated. It may have come from the sale of a product, the supply of a service, a loan, a deposit or from a variety of other sources.

Each transaction must be analysed to determine what type of accounts are affected, and whether each account is increased or decreased to determine whether the accounts are to be debited or credited. Each accounting transaction therefore should have two complimentary entries. Unit 14 General Journal Entries goes into more detail about Debits and Credits.

Debits Credits

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Transaction Categories

There are five major transaction categories that each transaction in a business may involve. Recognising the category involved in a transaction is important in an accurate recording of the transaction into the accounting system.

Type Function

Assets Record what the business owns or is due to be paid

Liabilities Records what the business owes to others

Owner’s Equity

Records the amounts contributed to the business by the owner or amounts withdrawn from the business.

Income Records sales and supply of services.

Expenses Records charges incurred in the running of the business and the production of goods and services.

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Account groups: Assets, Liabilities and Equity

Asset Accounts

Assets are items of value owned by the business.

An example of an asset account is the Bank account. Another example of an asset is the Debtors (Accounts Receivable) account. This is a less obvious example, but it is expected that the debt owed will be honoured, and is therefore an asset to the business.

Liability Accounts

Liabilities are items of value owed by the business.

An example of a liability account is a loan from the bank. Credit cards and overdrafts also represent a debt to a bank. Another example of a liability account is the Creditors (Accounts Payable) account.

Equity Accounts

As the name implies, this account group deals with the owner/s of the business. It shows the money or items of value invested into the business (called Capital), all withdrawals of cash or goods from the business called Drawings (sole trader and partnerships only), and any profits made or losses incurred in the accounting period.

Equity is similar to a liability but is regarded as a Special Liability as the business owes the owner for all money or items of value he/she has invested.

Activity

Classify the following as an asset, liability or equity account:

Computer: ............................................................................

$10,000 invested by the owner in the business: ...............................

Business Credit Card debt: ........................................................

Toyota Landcruiser used for deliveries: .........................................

$25,000 still owing on the Toyota Landcruiser: ................................

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The relationship between assets, liabilities and equity

Asset, liability and equity account groups are related to each other. They represent what the business owns or what the business owes.

In bookkeeping, a business report that lists what is owned (assets), and what is owed (liabilities + equity) is called a Balance Sheet (Statement of Financial Position).

The bookkeeping entity states that the business and the owner must always be regarded as separate. Even though equity is considered a special liability, the account group Equity is listed separately to the account group Liability. This supports the bookkeeping entity rule which states that the business and the owner are regarded as separate bodies.

BALANCE SHEET OF PETES PICKLES

AS AT 30 JUNE 2019

ASSETS LIABILITIES

Bank 1,500 Bank Loan 20,000

Production Equipment 10,000 Accounts Payable 2,000

Stock on Hand 5,500

Delivery Vehicle 30,000 EQUITY

Capital 25,000

$47,000 $47,000

This form of Balance Sheet is known as a T-form Balance Sheet. In a T-form Balance Sheet you will notice that the relationship Assets = Liabilities + Equity are presented in a way that clearly displays this relationship. This formula can be shortened to A = L + E and is known as the Accounting Equation.

Accounting Equation: A = L + E

Important: The Accounting Equation is an important accounting concept. The whole bookkeeping process is based on this equation. It will always show the relationship between Asset, Liability and Equity account groups.

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A Balance Sheet may also look like this, just another way of reporting the information. This is known as the Narrative form.

BALANCE SHEET OF PETES PICKLES

AS AT 30 JUNE 2019

EQUITY

Capital $25,000

Represented By:

ASSETS

Bank 1,500

Production Equipment 10,000

Stock on Hand 5,500

Delivery Vehicle 30,000 47,000

Less LIABILITIES

Bank Loan 20,000

Accounts Payable 2,000 22,000

$25,000

Note that the Accounting Equation is now:

Equity = Assets – Liabilities or E = A – L.

The Balance Sheet above tells the following story about the business owned by Petes Pickles.

On the 30 June, the business owned by Petes Pickles had $1,500 in the bank, owned production equipment valued at $10,000, stock available for sale valued at $5,500 and a delivery vehicle valued at $30,000. The business had a bank loan of $20,000 (probably used to buy the delivery vehicle), and owes $2,000 to creditors. The owners have invested $25,000 in the business.

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Account groups – Expenses and Revenue (Income)

A Balance Sheet changes as a result of transactions affecting Assets, Liabilities and Equity values. A business also has other transactions. These transactions involve costs incurred by the business (called expenses) and money earned by the operation of the business (called revenue or income).

Expense Account Group

An expense refers to any cost the business incurs during the business’s operation.

Examples of expenses are:

• electricity

• telephone

• purchase of stock items to resell at a profit (purchases).

The business has to pay for these services and buy stock in order to continue operations.

Another example of an expense is wages. The business has to pay its employees wages for the services they provide on behalf of the business.

Revenue (also known as Income) Account Group

Revenue is any incoming money the business receives from the sale of the goods or services it provides.

An example of a revenue account is sales. The Sales account records the value of all the goods or services that the business makes.

Another example of a revenue account is delivery charges collected. When a business sells its products to a customer it may decide to deliver these products for a fee. This fee is considered income earned for providing a service, but it is not sales.

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Working with the Chart of Accounts


Unit 4


Lesson outcomes

By the end of this unit you will be able to:

view the Chart of Accounts

list account classes and types

change account information

move accounts

delete accounts

create a Trial Balance report

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The Chart of Accounts

A Chart of Accounts contains a list of all the accounts required to record, track, organise and report on your company’s financial activity.

In Xero all accounts are in one of these five Classes: Assets, Liabilities, Equity, Expenses and Revenue.

In Xero these five classes are further divided into 17 specific account types. Numbers are associated with the accounts, but they do not determine grouping – the account type determines this.

Account Types

The Account Type determines the layout of reports

Account Class Description Examples Account Type

Asset Items owned by the business.

Cash at bank, debtors, motor vehicles.

Bank

Current Asset

Inventory

Prepayment

Non-current Asset

Fixed Asset

Liability Items owed by the business.

Creditors, Visa, bank loans.

Current Liability

Liability

Non-current Liability

Equity The owner’s share in the business.

Capital, drawings. Equity

Revenue Money earned from sales.

Sales, service income.

Sales

Revenue

Other Income

Expense Costs to run your business. Costs associated with producing a product.

Wages, rent, advertising, stationery. Raw materials, labour costs.

Direct Costs

Expenses

Overhead

Depreciation

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The Chart of Accounts

1. Click on Accounting Advanced Chart of accounts

Note: The Chart of accounts option is also listed directly under Accounting as it has been highlighted by a star to create a shortcut.

The Chart of Accounts for Hot Bod Yoga is displayed.

Each Account has a Code, Name, Type and Tax Rate.

You can modify this chart to suit your requirements by deleting, adding, changing the name, code, tax rate etc. Some accounts cannot be changed as they are crucial to proper working of the system – these accounts are indicated with a small padlock symbol.

Padlock

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2. Click on the Liabilities tab to view just those Account types.

3. Notice the Padlock next to the Accounts Payable account and the GST account.

4. Click on the line of Accounts Payable which will display the Edit Account Details window

5. Click on Save

Liabilities

Accounts payable

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Changing Account Details

When Amelia’s file was set up a set of accounts was selected to automatically create the many accounts required in general. From time to time you may need to modify the accounts.

Information such as account name, account type, code, description and tax rate can be changed.

Change an Account Name

1. Click on the Assets tab in the Chart of accounts.

2. Click the line for 710 Office Equipment to display details.

3. Click into the Name box at the start of the text, delete the text Office and then type Exercise so the name is now Exercise Equipment.

4. Click into the Description box and type Exercise equipment that is owned and controlled by the business.

5. Click Save.

Name

Description

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Your window should now look like the following:

6. Click on the Name for account Less

Accumulated Depreciation on Office Equipment

7. Edit the Name and Description to replace Office with Exercise

8. Click on Save

Account name and description have changed.

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Change an Account Code and Type

When you change an account code, all entries that have ever been entered will change as well for all new reports. Any reports that have already been published will not change. In this example we will change the 425 Freight account code to 315, change the account type to Direct Costs and change the name to Freight & Courier.

1. Click on the Expenses tab in the Chart of accounts

2. Click on the account 475 Freight

3. Click into the Code box and type 315 and TAB – check that it is available

4. Click on Account Type drop list button and click on Direct Costs. Notice the warning.

5. Click into the Name box and add the text & Courier

Your window should look like this:

6. Click Save to save your changes.

Code is available

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Change Tax Rate for an Account

All Accounts have a Tax Rate so that the GST or whichever tax is appropriate is calculated and accounted for. Then, when you come to do reporting on GST and other taxes, most of the work is already done for you. Amelia wants to keep Capital Purchase assets separate to other GST incurring expenses. So, she will use the GST on Capital tax rate. We changed to use the Advanced Tax Rates on page 65. However, the tax rates are not applied automatically to the accounts.

1. Click on the Assets tab – you will see the Account Exercise Equipment currently has a Tax rate of GST on Expenses

2. Click the Name link Exercise Equipment

3. Click the Tax drop list button and select GST on Capital

4. Click Save to save your changes.

5. Repeat to apply the Tax rate GST on Capital to 720 Computer Equipment.

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Create a New Account

The set of accounts provided for Amelia includes two main Sales accounts. We will add another account so the sales for classes in the studio are separated from sales to do with workshops and retreats. While Xero does not have sub accounts this is one way we can group accounts in reports which you will learn how to do later.

1. Click on Accounting Advanced Chart of accounts if necessary to display it

2. Click on the Revenue tab to view the current accounts in this Class

3. Click on the Add Account button

4. Click on the drop list button for Account Type

5. Scroll down and click on Sales

6. Click into the Code box and type 220

7. Click in the Name box and type Sales Workshops and Retreats

8. Click in the Description box and type Sales for Workshops and Retreats

9. Check that GST on Income Tax Rate appears in the Tax box

10. Click on Save

Add Account

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Practice Exercise 4.1: Edit Account Name and Type

1. Click on the account 200 Sales

2. Edit the account so the Name is now Sales Classes

3. Click on the Account Type drop list button scroll down and select Sales

4. Click into the Description box and edit the text to read Sales for all classes- not retreats or workshops

5. Click on Save

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Spend Money: Purchases


Unit 7


Lesson outcomes


• enter payments to Suppliers through Spend Money

• create a Bill received from a Supplier

• pay Bills

• create a batch payment

• send a remittance advice

• enter and use Repeating Bills

• edit a payment

• view transactions in the bank account

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Overview

Xero is all about accurate records and saving time. You don’t want to go through the process of entering every little purchase as a purchase order or bill and then paying it.

There are three methods of entering money that has been spent:

• Paying Bills

• Spend Money

• Cash Coding

Bills are useful for purchases from Suppliers that you have an account with. Entering Bills helps you keep track of what you owe when and to whom.

Spend Money can be used to enter immediate payments, writing a cheque or using EFTPOS to pay expenses such as your electricity bill, telephone account, insurance payments etc.

Cash Coding is very useful for recording transactions that happen regularly such as bank charges from a bank statement or paying for fuel, or other payments that happen multiple times in a month. We will look at cash coding in the Unit on bank reconciliation.

Enter payments through Spend Money

Amelia has made several purchases during the month.

1. Click on the New + icon and Spend money.

2. Click on the NAB Business account in the list of bank accounts then Next.

New +

Spend Money

Business Account

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You can add New Contacts as you go and edit their details later if needed.

3. Click on Spent as and select Direct Payment if necessary

4. In the To box type Super Stationery Suppliers then TAB

5. In the Date field type 4 Jul 2018 and press TAB twice

6. In the Total field, enter 320.

7. Check that Amounts are is Tax inclusive

8. Leave Item blank – this is only for Inventory items

9. Click into Description and type Various office stationery and TAB

10. Type 1 in the Qty field and TAB

11. Type 320 in the Unit Price field and TAB

12. Start to type 461 - Printing and Stationery and TAB

13. Check the GST on Expenses appears in the Tax Rate column

14. Click on Save

The transaction appears in the transaction list.

Spent as

To Date

Tax

Description

Save

Tax Rate

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We will enter another purchase via Spend Money.

15. Click on the + Icon and Spend Money

16. Click on the NAB Business account in the list of bank accounts then Next

17. Click on Spent as and select Direct Payment if necessary

18. In the To box type Bell Tel and TAB

19. In the Date field type 6 Jul 2018

20. TAB to the Total field, enter 220

21. Check that Amounts are is Tax inclusive

22. Click into Description and type Monthly internet telephone and TAB

23. Type 1 in the Qty field

24. Type 220 in the Unit Price field and TAB

25. Click on the drop list button and scroll down to 489 - Telephone & Internet and click

26. Check the GST on Expenses appears in the Tax Rate column

27. Check that the Total reads 220.00

28. Click on Save

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You will now have two extra transactions in the Account transactions tab for the Business account. You can continue to enter Payments from the same bank account just by clicking on + New Transaction

1. Click on + New Transaction

2. A New Spend Money window appears – enter the following details:

3. Click on Save

A blank New Spend Money window appears automatically. You can continue to enter transactions and just click on Save until you are finished and then just click on Cancel to close and return to the Account transactions list.

+ New Transaction

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Checking Documents for GST Component

In business it is most likely that most of your bills and charges will include a 10% GST component. A business registered for GST essentially gets a refund from the ATO for this GST tax Input Credit.

However at the very least all of the situations below could occur:

• Not all products have a GST tax, unprocessed food for example.

• Not all businesses are registered for GST either.

• There is also the occasion when a bill may have a combination of GST and GST free products.

GST Free Purchase

In this transaction we will enter a GST Free purchase. In this instance it is because the products are classified as GST-free food.

Each time you check a Payment Receipt you must check the amount of GST.

TAX INVOICE

EFT: Business Account

Date: 19/07/2018 Pay: Farm Gate Co-op

Fruit $22.50

Total Amount inc GST: $22.50

Amount of GST included: $0.00

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GST Free Purchase: GST Free Item

In this transaction we will enter a GST Free purchase. In this instance it is because the products are classified as GST-free food. Amelia always has a big bowl of fresh fruit on the front counter. Mostly apples and bananas.

1. Click into the To box and type Farm Gate Co op and TAB

2. In the Date box type 19 Jul 2018

3. TAB to the Total box and type 22.50

4. TAB to Description and type Fruit for front counter

5. TAB to the Qty column and type 1

6. TAB to the Unit Price and type 22.50

7. TAB to Account and type 429 for General Expenses

8. TAB to the Tax Rate column and click on the drop list button

9. Click on GST Free Expenses

10. Check that GST is now 0.00

11. Click on Save

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GST Free Purchase: Supplier not Registered for GST

Some businesses while having an ABN may not be registered for GST because the turnover of the business is less than $75,000. This means that a business purchase that might normally incur a charge of GST, such as cleaning, does not.

Sally Sparkle runs a small cleaning business and does not turn over enough to warrant registering for GST. As a result, what she charges clients for cleaning does not have a GST component. Notice also that her invoice just reads Invoice – no Tax Invoice.

1. Click on + New Transaction if necessary

2. Click into the To box and type Sally Sparkle and TAB

3. In the Date box type 7 Jul 2018

4. TAB to the Reference box and type Inv 150

5. TAB to the Total box and type 90.00

Sally Sparkle ABN 10 425 425 425

Date: 7/07/2018 Invoice # 150

3 hours cleaning studio floors and bathrooms 3 x $30 per hour.

Total : $90

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6. TAB to Description and type Cleaning studio floors and bathrooms

7. TAB to the Qty column and type 3

8. TAB to the Unit Price and type 30.00

9. TAB to Account and type 408 for Cleaning

10. TAB to the Tax Rate column and click on the drop list button

11. Click on GST Free Expenses

12. Check that GST is now 0.00

13. Click on Save

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Purchase Part GST and Part GST Free

The situation where the amount of GST is not just 1/11th of the total charge can happen easily where some items have GST applied and some do not.

This payment is for a postage bill and includes $25 GST. The Total including GST is $355 – however $25 is not 1/11th of $355.

EFT: Business Account Date: 18/07/2018

Pay: Australia Post

Postage (within Australia + International)

Total Amount inc GST: $355.00 Amount of GST included: $25.00

We use this amount to work out the portion that is GST Free.

GST is 1/11th of the charge that includes GST. So, GST amount multiplied by 11 will give the charge including GST amount.

Postage bill (including GST) = $25 x 11 = $275.00

Therefore, the total amount of the bill less the charge including GST should give us the GST free amount.

International postage bill (GST-Free) = $355 - $275 = $80.00

Go to the following page to look at how this is entered in Xero. Sample

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1. In the To box type Australia Post and TAB

2. Enter the date 18 Jul 2018 then TAB to the Total box and type 355.00. It useful to enter the total amount here as a check against the line totals

Now for the details. 3. Click into Description and type Domestic postage then TAB

4. In Qty type 1 then TAB to Unit Price and type 275.00

5. TAB to Account and type 315 and TAB

6. Check that GST on Expenses appears in the Tax Rate box

7. Click on Add a new line

8. Click into Description and type International postage then TAB


10. TAB to Account and type 315 and TAB

11. Click in the drop list button for Tax Rate and select GST Free Expenses

12. Check the total Includes GST in the transaction – it should be $25

13. Click on Save

14. Click on Cancel to close the Spend Money panel.

Includes GST

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Notice all the transactions you have entered so far appear in the Account transactions tab. The Status for each is unreconciled. We will leave it this way until later when you learn about bank reconciliations. We will also cover Cash Coding and Bank Rules to help speed up the process.

Notice that there are two account balances – the Statement Balance – this is from the current balance in the organisation file. In practice it would be from a bank reconciliation or from an opening balance when the file was commenced. This will not change until you perform a bank reconciliation. The other balance is the Balance in Xero – this amount is based on the Opening balance or the last Statement Balance less the transactions you have entered so far.

Account transactions

Statement Balance Balance in Xero

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Purchases Dashboard

You can also spend money via the Purchases area. Purchases are entered, and you can record a payment straight away or they can be paid sometime in the future.

1. Click on the Business Purchases overview

2. Check that the current outstanding purchases are $770. Awaiting Approval has $550.00 in it.

At the end of this unit the Purchases Dashboard will have a lot more in it.

3. Click on either the Awaiting Payment or the Overdue

The Bills window appears with the Awaiting Payment tab displayed as shown on the following page.

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Notice the other tabs in this window.

The Bills awaiting payment and approval were provided with the starting organisation file.

Add a New Bill

Amelia has received a bill for advertising from Classified for $1980.

1. Click on the New Bill button in the Bills window

2. Click into From and type Classified – as soon as it appears on its own in the list of contacts you can press TAB

3. Type 4 Jul 2018 in the Date box and TAB to Due Date – 18 Jul 2018 should appear automatically

4. TAB to Reference and type D11089

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Now for the details. 15. Click into Description and type Advertisement in Creative Living

Magazine then TAB


17. TAB to Account and type 400 for Advertising and TAB

18. Check that GST on Expenses appears in the Tax Rate box

Your Bill should look like this. DO NOT click on APPROVE yet. We will look at the various options on the following page.

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Create Invoices & Receive Money


Unit 8


Lesson outcomes


create invoices

email invoices

receive payment of invoices

receive money

create and apply credit notes

Overview

There are three methods of entering money that has been received:

• payment of sales invoices

• receive money

• cash coding

Invoices are useful for sales to Customers that have an account with you. Entering invoices helps you keep track of whom owes you what and when.

Receive Money can be used to enter immediate receipts such as daily shop takings, online sales, or deposits received.

Cash Coding is useful for recording common receipts that happen multiple times in a month. We will look at Cash Coding in the Unit on Bank Reconciliation.

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Create a New Invoice

We will create some invoices for customers who are due to renew memberships.

1. You can create a New Invoice with either:

+ New Invoice OR Business Invoices New Invoice OR New sales invoice on the Dashboard.

The New Invoice window appears:

2. Click into the To box and type the name of the Customer – in this case Ava Green and TAB

3. Type 1 Jul 2018 in the Date box

4. Notice that the Due date and Invoice # are entered automatically

5. Check that the Amounts are box reads Tax inclusive

6. TAB to the Item column on the first row

7. Click on the drop list button and click on Month06: 6 Month Pass

The row will be populated with details entered when setting up the Inventory item. This was covered in Unit 6.

8. Check the Tax Rate is GST on Income

9. Check the total is $660 and that $60 GST is included

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As with Bills there are several ways to deal with this invoice now:

10. Click on the drop down Approve menu.

Approve is the final stage in recording an invoice. You can go straight to this if you have completed all parts of the invoice and you have the authority to approve its recording.

Approve & add another will save the invoice and put it in the Awaiting Payment tab. The invoice window will remain open for the next invoice to be entered.

Approve & print

The following options are available on the Save drop down menu

Save an invoice is for users who may only have the authority to save and then submit to another user for final approval. Just clicking the Save button will save the invoice as a draft.

Save as draft will save the invoice and the user can return later and add more details or edit it then proceed.

Save (continue editing) will save the entries you have made so far but leave the invoice open for further work

Save & submit for approval will save any changes you have made and put the invoice into the Awaiting Approval tab.

Save & add another will save the current invoice in the Draft tab and leave the invoice window open to enter details for a new invoice.

11. Just click on Approve to record the invoice – the invoice is approved but still displayed on the screen

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12. Now provide a copy of the invoice to the customer – Click on Email

13. Make the entries as shown then click on Send

Include PDF attachment. This will add a pdf of the invoice

to the email that the customer can save or print.

You can edit what appears here although do not change the text for [Online Invoice Link]

In practice you would enter the customers email address here but, so you can see what happens, put your own email address here

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The customer will receive an email. A PDF is attached if you ticked that box and there is a link to the Tax Invoice which will display as shown to the left on a separate Browser tab.

14. Close the tab for the link

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15. Click on the link Invoices if necessary

The invoice you just created is listed with others on the Awaiting Payment tab. Notice the other tabs.

View the Sales Dashboard

1. Click on Business Sales overview

Invoices

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Edit a Draft Invoice and Approve

1. Click on the Draft tab

2. Click on the draft invoice to display it

3. Click on the Item drop list button and scroll down to select Month06: 6 month Pass – this will put consistent information into the invoice

4. Check that Tax Rate has GST on Income included

5. Click on Approve

Item Tax Rate

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Repeating Invoices

1. Return to the Invoice dashboard, click on the New Invoice drop list button and select New Repeating Invoice

As with repeating bills, repeating invoices are like standard invoices but with extra details regarding how many times the invoice will be repeated. This invoice is for a group session scheduled fortnightly on a Friday for 7 sessions. The sessions commenced on the 6 July 2018 and the last is on 28 September 2018.

2. Click into the first box and type 2

3. Check that Weeks appear in the time period box

4. Click on the Invoice Date, enter 6 Jul 2018 and click OK at the warning prompt

5. Leave 7 as the due days.

6. Click into End Date and type 28 Sep 2018

7. Click on Approve and type the contact name Seaview Village Inc in the Invoice To box

8. In Description type Group stretching and meditation session and TAB

9. In Qty type 1 and TAB

10. Type 400 in Unit Price and TAB to Account

11. Type 220 for the Sales Workshops and Retreats account

12. Check that Tax Rate is GST on Income then click on Save.

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Receive a Payment 1. Click on Business Sales overview if necessary

2. Click on the Awaiting Payment tab on the Sales Dashboard

NOTE: You can see all the repeating invoices from the previous section have been created and approved.

3. Click on the invoice for Amanda Ellis – this was already created in the opening organisation file.

Amanda Ellis

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The invoice to Amanda Ellis is displayed. Notice the total amount is entered automatically in the Amount Paid box.

4. Click onto Date Paid and type 8 Jul 2018

5. TAB to Paid To and click on the drop list button and click on 100 - NAB Business

6. TAB to the Reference box and type Direct Deposit

7. Click on Add Payment

Amount Paid

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You will be returned to the Awaiting Payment tab – the invoice will no longer be in the list as it was paid in full. If you want to view it, you can just click on the Paid tab.

8. Click on the Paid tab

9. Click on the line for the invoice/payment to display the original invoice

10. Click on Invoice Options just to view what is available if you need to edit or repeat it.

Invoice Options

Edit

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Payment of more than one invoice: Batch Deposit

A customer may pay more than one invoice in one payment. Seaview Village has sent a remittance of $800 for invoices INV-0005 and INV-0006.

1. Click on Business Sales overview if necessary

2. Click on the Awaiting Payment tab on the Sales Dashboard

3. Click on the Select box for the two invoices for Seaview Village

4. Click on Deposit

The New Batch Deposit window appears.

5. Click into Payment Date and type 31 Jul 2018

6. TAB to Reference and type Invs 005 and 006

7. TAB to Bank Account, type 100 and then TAB to select the NAB Business account

8. Type Direct Deposit as the Reference/Cheque No on each line if necessary

9. Click on Deposit

Deposit

Select

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Enter Invoice and Receive Payment in One Step A customer, Lindy Browning, has visited the studio to pay for her new 12 month membership. She also wants to pay for it now by EFTPOS, using her credit card.

1. Click on + New Invoice

2. Click into the To box and type Lindy Browning then TAB

3. Enter the Date of 20 Jul 2018. The invoice number is entered automatically

4. Select the item Month12: 12 Month Pass and set the tax rate to GST on Income. The remaining fields are populated automatically.

Your invoice should look like this:

5. Click on Approve

6. Click into Date Paid and type 20 Jul 2018 then TAB

7. Enter the remaining details then Add Payment

Approve

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Cash Sales Receipts using Receive Money

In the following example, Hot Bod Yoga need to record their weekly cash sale amounts from the cash drawer in the shop, into their Xero software. These sales are for small items that are not on the Items list. We will just work through this here, so you know how to enter cash this way if necessary. You can also quickly enter cash receipts via the Bank Reconciliation which we will look at in the next unit.

1. Click on the Add new button + in the icon menu

2. Click on Receive Money

3. Click on NAB Business in the bank account list

4. Click on Next

A blank New Receive Money window will appear.

5. Click into From and type Cash Till

6. TAB to the Date box and type 7 Jul 2018

7. TAB to the Reference box and type For week 1 Jul to 7 Jul

8. TAB to Total and type 230

2. Receive Money

1. Add New

3. NAB Business account

4. Next

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9. Click into Description and type Cash receipts from sales in the shop

10. TAB to Qty and type 1

11. TAB to Unit Price and type 230

12. TAB to Account and click on the drop list button

13. Click on the account 210 - Sales Products

14. TAB and check that GST on Income appears in the Tax Rate column and 230 appears in the Amount column

15. Click on Save

We will do more on receiving money when we look at bank reconciliations later. Sam

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Mapping Matrix


Appendix A

Mapping Matrix

Elements of Competency and Performance Criteria –

FNSACC304

Element Performance Criteria Reference

1 Obtain and enter data into computerized accounting system

1.1 Obtain input data from organisational or client source

Units 4-8, 12

1.2 Confirm purpose of information and verify information is in correct format for entry into system

Units 2, 4-8, 12

1.3 Enter information into system and confirm its accuracy according to organisational procedures

Unit 2, 4-8, 12

1.4 Seek technical help to solve operational problems

Units 2, 3, 7, 8, 11

2 Process transactions in computerized accounting system

2.1 Collate, code and classify input data before processing

Unit 7, 8, 12

2.2 Review system output to verify accuracy of data input according to organizational procedures

Unit 7-11, 12

2.3 Seek help where required to correct detected processing errors

Units 3, 7, 8, 11,

3 Produce reports

3.1 Generate reports in line with organizational policies and procedures that indicate financial performance and financial position of organisation and for goods and services tax (GST) purposes

Units 8, 11, 12

3.2 Generate reports that confirm that subsidiary ledgers and accounts reconcile with general ledger

Units 11, 12

3.3 Generate reports that confirm that system’s bank account entries reconcile with bank statement

Units 9, 10, 12

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