Xero is great bookkeeping software which allows you to keep up to date accounting records. Every day all the bank transactions are shown in Xero - you just need to do is tell the software about the transaction. Is it sales, a transfer from another bank account, or some money you’ve put in to buy a new company vehicle? Is it a payment for inventory, a power bill, or are you taking drawings?
Some clients ask us why they have to do it.
When we prepare your financial statements, we include a profit and loss account and a balance sheet. These summarise the transactions throughout the year, including those coming from the business bank account(s). The thing is - Xero needs to allocate those bank transactions as income or expenses in the profit and loss account, or an asset or liability in the balance sheet. The only way to do this is by assigning an account code during the reconciliation process.
Your GST return needs to show:
- Income declared for GST purposes
- Expenses where GST is claimed
- Transactions which have no GST (such as bank fees, interest, and wages)
- Transactions where the GST rate is 0% (mainly for imported and exported goods and services)
By reconciling Xero, you're making sure that each transaction is automatically assigned to one of those four categories.
It’s always best to get on top of your reconciliations and sort issues out as soon as they arise so they don’t compound, or get left until you can’t remember what the issue was. If you'd like someone to help take the reconciling away, talk to our Support team about whether our bank reconciliation product is right for you. For $95 +GST a month, we'll take care of your reconciling leaving you to get on with your business and spend your time on something more valuable.