Accounting and Bookkeeping Tips for Xero Users

Some of the more powerful features of Xero as an accounting and bookkeeping software lies in its ability to integrate with your company’s bank accounts, but what if your transactions are managed through a petty cash float instead of a specific bank account?

Options for Managing Cash Float on Hand

1

Creating Current Asset in Chart of Accounts (Not recommended)

Chart of Accounts Approach - Xero Petty Cash Management

  • Chart of Accounts can be updated to include a Petty Cash account
  • Petty cash account will reside within the Chart of Accounts as a Current Asset
  • Unfortunately, this approach has limits several of Xero's key strengths
  • For instance, when making or accepting payments, accounting adjustments through manual journal entries may be required to pass these entries into the  Petty Cash current asset account
  • Where users rely on Xero's free Hubdoc feature, further problems may arise
  • Hubdoc publishes into Xero through "Purchase", "Invoice (AR)", "Spend Money" or "Credit Note" transactions
  • In particular, the "Spend Money" transaction offsets the transaction amount from the company's bank account listed in Xero, requiring manual adjustments to reverse and pass these amounts into the Petty Cash Current Asset account
  • This results in error-prone bookkeeping process that severely limits the strength of Xero and its bank account integration strength

2

Petty Cash as a Bank Account (Recommended)

  • Given that Xero relies heavily on integrations with bank accounts, the most natural solution would be to create a bank account (no, not a real one, just a dummy account in Xero)
  • Do note that to add a bank account in Xero users will need either an adviser account or a standard user role
  • To add a bank account, go to Accounting -> Bank Accounts

    Navigating Xero Bank Accounts

  • Click on "Add Bank Account" to be prompted to find your bank's name
  • Type "Petty Cash" as the bank name, and you will be prompted that the bank cannot be found. Select "Add it anyway"

    Adding Petty Cash Account

  • Next, fill in the relevant details for the Petty Cash Account. Fill out the Bank Name, Account Name and Account Number as "Petty Cash", and select "Other" as the Account Type

    Petty Cash Account Details

  • The Petty Cash account is now ready to be integrated with Xero
  • Mark transactions to the Petty Cash account as reconciled for bank reconciliation purposes.
  • For more details, check out this article on Xero Central.

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