Xero flaunts itself as Beautiful Accounting Software. Indeed, once you experienced it, you will be attracted and hooked. They are based in New Zealand and provides accounting via SaaS (Software as a Service). Meaning all your accounting are done in the “cloud” or simply online. You can access it anywhere anytime via web browser or a mobile app. Since they offer a global product, you can use in any country you are in. They sell in a monthly subscription model. You pay a monthly fee to use the service.
Xero was founded in 2006 and now it has over 200,000 paying customers in 100 countries. It’s a public company with over 300 employees and a market cap of over 2 billion USD. It is one of the top 20 companies in New Zealand Stock Exchange. The software promises to have a 99.99% service availability performance and has over 300 add-ons to extend its functionalities.
Signing up with Xero is easy, all you need is an email address. Once you have verified your email address, you can set up your first Organization and you will be known as the Subscriber to Xero. You can even add multiple companies if you happen to own many and each company will have its own Dashboard under your Subscription.
As with any other accounting systems, your fist task is to set up your business details. You will have to go to a series of tabs answering questions about your company. There will be links to guides and tips along the way. It’s best to ready you company details at this point like addresses and numbers. Below is the information you need.
Chart Of Accounts
Most of the stuff are self-explanatory and we will only focus on key matters. On Users set-up, if you want your accountant to finish the set up for you, you just have to add him as your first user. From there he can take over from you as the owner or subscriber.
Since different countries have different tax laws, you should tailor your setup to what is applicable in your area. Note that these are just tax rates and not ledger accounts themselves. These are the rates you can choose from on every line item in your journal entries. Since taxes affect both purchases and sales, setup first appropriate VAT rates namely Input VAT on Goods, Input VAT on Services and Output VAT.
Chart Of Accounts
You will be given a default set of chart of accounts which you can choose and modify later. If you want to create your own, you can also import it from a file. The default chart has all the standard ledger accounts like AR, AR, revenue and expenses and some of these are locked like Depreciation and Retained Earnings. Meaning you can only edit their details but cannot delete them.
After you have setup your accounts, enter in your account balances. If you are just starting a business, you can just key in your initial investment by putting the amount in your bank as debit and credit same the amount to Owner’s Capital. If however, you are transitioning from a previous accounting software, you have to input all ending balances from there.
When the setup is complete, you will be taken to your dashboard. The dashboard is like the financial landing page for your business. It gives an overview of important matters in your accounting. Information is grouped base on transactions namely Bank Accounts, Money Coming In, Money Coming Out and Expense Claims. Xero’s terminology might not be agreeable to some accountants but they are designed for simplicity and straightforwardness. Money Coming In is simply Sales and Money Coming Out is aptly Purchases. But it would have been nicer to name it just AR and AP.
Creating A Bill
This is the heart of your Accounts Payable. Every spend or purchase must go through a bill. Bills are essentially invoices coming from your creditors. In Xero’s terms, Suppliers and Customers are called Contacts. Think of them as your subsidiary ledgers while the account Accounts Payable is your GL account. So in a bill, the line items will go to their respective GL accounts while the credit or debit total will go to the Supplier Contact.
Creating An Invoice
On the other side of your operations is generating Sales. Every sale transaction is supported by an Invoice. So an invoice is a document you generate and send to your customers which in turn becomes a Bill when they record it in their own system. You can customize the look of your invoice with your own branding or company logo. You can even email your invoices to your customers from with Xero.
Xero’s reporting features are pretty robust considering you can run all sorts of schedules from your financial data. From standard financial statements like Balance Sheet and Income Statements to summaries, aging and cash reports. Exporting your reports is not a problem through Excel, PDF and even Google Docs.
From 9 USD per month for their Starter Plan up to 180 USD per month for their Premium 100 Plan. Only credit or debit cards are accepted.
1. Clean and easy user interface – I like the feel of Xero’s design. Filling up forms and inputting numbers can be cumbersome sometimes but with Xero, it’s stress-free.
2. Bank feeds – Bank feeds let you automatically import bank statements into your Xero company from banks and other financial institutions. This saves you having to manually import them yourself.
3. Import and export – Entering bulk transactions is expedited with the import feature. And if you want to take your data off from Xero, you just export them.
4. File storage – I like this feature because it promotes paperless accounting in a way. All documents, receipts, contracts should be up there with your financials.
1. One Sales Tax account – Xero uses a single GL account for Input and Output VAT and automates the tax computation base on the tax rates you have set up. This is good for Sales but for Purchases, you might have to do some workarounds on some transactions by creating a separate asset account.
2. Restriction on bank accounts – You can’t actually use them by design when you make a Manual Journal or General Journal. They are exclusive in creating a bill or an invoice. You have to create suspense accounts to get around this predicament.
3. No global search – This is what Netsuite has done elegantly. You type anything on the search box, a suggested list pops up, you click on any link and you are taken to that page. What Xero has is search on individual pages or tabs which is somewhat limiting.
4. No quotation system – You can’t raise quotes to your customers. What you can do instead is create a draft invoice, edit it as a quote and send it. Again, a workaround doesn’t always fix the problem.
5. No batch payment for invoices – If a customer pays you multiple invoices, you can’t record it right away, you have to do with through bank rec.
Xero has grown rapidly over the past years. A number of great features have been added since they launched and they continually listen to their customers on how to make the application better. They have achieved a level of success towards combating the traditional desktop accounting software. Overall, it’s a great product that is suited for DIY business owners and small to medium businesses.