Bookkeeping Tips

Getting Started

Entertainment

Vouchers / Prezzy/Gift Cards

When reconciling a voucher purchase or sale, we need to ensure there is no GST.  Vouchers will never incur GST because the GST is transacted at the time a voucher is used. So no matter whether the business is GST registered or not, there is No GST to be entered when you put into Xero.

Drawings and Funds Introduced

Sometimes a business owner needs to take cash directly from the business for personal use and this is treated as drawings and sometimes they may need to deposit cash directly into the business and this is treated as funds introduced.

Some businesses may set up a Shareholder Salary expense code instead of using Drawings.

Zero Rated GST vs No GST

Always check the invoice or receipt to see if there is GST charged or not.

If you are sending an invoice to an overseas client or customer then you need to choose the GST Type - Zero Rated. This then flows through onto the GST return automatically.

If you are coding a purchase and there is no GST (supplier is not GST registered or they are an overseas business) so choose the GST Type - No GST.  If there is VAT or another overseas tax type then still choose the No GST option and put the full purchase amount in.

Read more about Tax Rates here https://help.xero.com/nz/Settings_TaxRates

Secondhand Goods

If you are a business and purchase something secondhand (eg neighbour, fridge from TradeMe) and you are GST registered then you can claim the GST, even if the person you bought the item off is not GST registered. 

Overpayment vs Credit Notes vs Void vs Bad Debts

Credit Note: If an invoice has been sent to a client and it needs to be credited ( eg shouldn't have been charged or was incorrectly charged or they returned a product) then a credit note should be created, applied to the invoice and then the credit note sent to the customer. 

See Xero help centre for more details and instructions https://help.xero.com/nz/Payments_AddCreditNote

Overpayment: If a customer pays more than they owe then this is treated as an overpayment. Never create a credit note in this scenario. If they do make an overpayment then the two options are to provide a refund (pay the money back to them, you'll need to ask for their bank account details) or apply the overpayment to the next invoice you issue them.

See Xero help centre for more details and instructions https://help.xero.com/nz/Overpayments

Void: You can Void a sales invoice or supplier invoice with caution and be certain first that you shouldn't actually be creating a credit note. The times when you might need to do this if there is a duplicate invoice been created in error and has never been sent to the client.

See Xero help centre for more details and instructions https://help.xero.com/nz/Invoice-DeleteVoid

General Expenses

General Expenses code is used sparingly. The accountant at the end of the year will look at this code and will try to reallocate where possible so keep the total amount low.

If you just couldn't find any other code for something very one-off. 

Suspense Code

A suspense transaction is where we record unclassified transactions, it temporarily holds entries until we decide where they should go. This account is only used temporarily and should always have a balance of $0 at the end of the month.

For example when a spent transaction comes into the bank, but the amount has been dishonored by the bank and the money comes back into the bank you can use the Suspense code. We can code both transactions to the Suspense code and the Suspense account will balance out to $0. 

You could also use the suspense code if someone accidentally uses the work Eftpos card for a personal purchase, and then they transfer the money back into the account to pay it back. This means you’ll have the in and out transactions both the same amount and not relating to any business expense. Code both transactions to Suspense code and this will $ out the balance in the Suspense account.

Quick Way to Check for Client Errors

No client should have "bills" on their awaiting payment tab that have a photo of a paid eftpos receipt attached that are more than a week or so old. This tends to indicate either:

the payment got processed on the bank feed as a spend money - this is a duplication and needs fixing!

the client accidentally used a personal card - payment needs allocating as 'funds introduced' (ask if you don't know how)

OR - weird scenario but has happened - client has setup a new company credit card and that is not yet connected to Xero!!!

One of the checks that should be run through prior to saying your client Xero is ready for GST review is that there are no 'old' bills that are actually paid. As the client only gets the GST back on 'payments' basis these need to be resolved before the return is submitted.

Spend Money vs Matching, GST Audit Report

To come

Asset and Expense Accounts

When reconciling the bank accounts or approving a bill/receipt in Xero, we need to ensure the account code is correct. 

An asset is an item that has a greater life of one year whereas an expense is an item that is usually consumed immediately during that accounting period. An asset less than $1000 is considered an expense and is fully deductible within the period in which it occurs. This also means that this is included in the Profit and Loss statement. 

If, however, we purchase several assets that is $1000 or less but total more than $1000 together at the same time and from the same supplier, the threshold is applied to all the items and no immediate deduction is available.

Scenario 1:

Bill goes to Mitre 10 and buys a chainsaw for $599. This is classed as an expense and is usually coded to Assets – Less than $1000 in Xero. This item is accounted for in the accounting period in which it occurred.

Scenario 2:

Bill goes to Mitre 10 and purchases a chainsaw for $1599 at the same time. This is over $1000 and will be considered an asset, this will not be shown in the Profit and Loss and will have no immediate deduction. This will be depreciated throughout the year and will be included in the balance sheet.

*Please note that the $1000 threshold is exclusive of GST.

Important to note: 

If a transaction or bill is incorrectly coded to the expense account first rather than the asset account before being updated to the asset account, this will not automatically be added to the asset register and we will need to manually add it to the asset register.

Fixed Asset Register

To come

Not Just Clicking OK

Xero remembers previous transactions that have been reconciled so the next time a similar transaction comes up Xero will automatically fill in the details. Xero makes a suggestion based on a previous transaction that has been reconciled the details are likely to be incorrect so we do not just press OK on these transactions because there is a good chance the information is wrong. 

Make sure to check the name, account code and description before reconciling.

Shareholder Employee ACC

Only a portion of ACC has GST - A shareholder-Employee invoice will have a portion that relates to their earner levy which does not have a GST content - but the remaining portion will be GST-able.  Need to actually take the GST from the bill. Straight Employer ACC does have GST on the whole bill.

View a Supplier or Customer's Account

You might have a supplier or customer that has got in a tangle and you want to review their history / how credits are applied / where things don't match.  There is a link to a report on the Contact screen - go to Contacts, search for them and then click that contact.  NOTE you need to make sure you are clicking the one that says Bills (not invoice). From here you can see all of the activity for that contact.

Payroll

Minimum wage vs Training wage vs Starting out wage

The current adult minimum wage is $22.70 per hour. 

The current starting-out wage is $18.16 per hour.

The current training wage is $18.16 per hour.

There is no minimum wage for paying employees under 16.

Learn more about minimum wage here: https://www.employment.govt.nz/hours-and-wages/pay/minimum-wage/minimum-wage-rates/

Public Holidays

Employees get paid time and a half for working a public holiday, if this day is a usual working day for the employee, then they also get a day in lieu (or alternative day) which they can use at a later date. 

Scenario 1:

Bill works Monday to Friday 9am to 5pm each week. There is a public holiday on a Monday, so Bill receives time and a half for the public holiday worked and receives a day in lieu.

Scenario 2:

Jenny works Tuesdays and Fridays each week, she was asked to come in and work on the Monday which is a public holiday. Jenny gets paid time and a half for the Monday, but she does not get a day in lieu because this is not an ordinary working day.

A usual working day is a day that the employee would have normally worked if the day had not been a public holiday. 

Sometimes it is difficult to calculate a ‘usual working day’ when employees have irregular shifts each week. Always double check if you are unsure or you can use this website to calculate it: apps.employment.govt.nz/holiday-tool/owd.aspx

Emailing the Client regarding GST Preparation 

We are going to email the client to advise that we are beginning the GST preparation process.

This is so it brings it to their attention that if they have missing receipts etc they need to get these through to us.

Email template:

To: Client's email address

Subject: GST Preparation

Good afternoon [Client name], 

We have GST due this month, and are starting to begin the GST preparation in Xero.

If you do have any missing receipts/invoices that you have been requested to provide can you please get these in to me in the next few days.

I will let you know if I have any questions during the GST preparation process

Cheers, 

Due date: As per the Payment Due date on the email (as per above)

Attachment: Attach the GST report to the Bill

Description: GST Payment (or refund) for GST Month / Month Year (for example above Feb / March 2022)

Qty: 1

Amount: Amount to pay - or negative amount if its a refund

Account: GST

GST: No GST

Approve Bill

Once completed you can just leave it in the GST folder

Paying tax to IRD

Chart of accounts

There are many different account codes when adding a new GL Code in Xero:

• Asset

• Equity

• Expense

• Liability

• Revenue

Within each of these there are sub codes that you will need to choose:

Asset

• Current

• Inventory

• Non-current

Equity

• Equity

Expense

• Depreciation

• Direct Costs

• Expense

• Overhead

Liability

• Current Liability

• Non-current Liability

Revenue

• Other income

• Sales

Asset Codes

• Current

Cash and other assets that are expected to be converted to cash within a year

• Inventory

Used to track inventory in Xero

• Non-current

The same as fixed assets - Assets which are purchased for long term use and are not likely to be converted into cash quickly such as land, buildings and equipment

Equity Codes

• Equity

A representation of the financial side of the business, equity can come from payments to the business by its owner or from the earnings generated by the business

Expense Codes

• Depreciation

Used for depreciating the fixed assets in the business

• Direct Costs

Expenses that are connected to a specific product and affect the profit margin of your product or service. A cost that a business incurs to be able to sell their product or service.

• Expense

A cost the business incurs to be able to generate revenue.

• Overhead

Expenses incurred by the business that is not directly linked to creating a product or service. 

Liability Codes

• Current Liability

A short term financial obligation that are typically due within a year.

• Non-current Liability

A long term financial obligation that are not due for more than a year.

• Revenue Codes

• Other income

Revenue received from activities unrelated to the main focus of the business.

• Sales

Revenue generated by the sale of goods or services directly related to the business’s operations

ACC Bill Coding

Home Office Expenses Spreadsheet

There are two different sheets within the home office spreadsheet client copy.

Home Office Renting

• This is to be used when your client would like to claim part of their home as a business expense when they rent

Home Office Own Home

• This is to be used when your client would like to claim part of their home as a business expense when they own their own home

Before sending this spreadsheet to the client, edit the ‘’client name goes here’’ box with the clients legal business name. 

Advise your client they need to complete the pink highlighted boxes on if it is relevant, if for example they do not use any outside garage for storage, they do need to add anything in.

When they are completing the monthly expenses when they are renting a home, please advise them that it is GST exclusive amount to be entered in Column B but the remaining expenses are inclusive of GST.

When they are completing the monthly expenses when owning a home then they need to only include the Mortgage interest – not the principal amount - in column B. 

They need to edit the F17 Cell depending on if they are registered for GST or not.

The rest of the spreadsheet will calculate itself.

Once the spreadsheet has been returned from the client, copy the data into the Savvy Use Only spreadsheet and send a copy to the person who will be preparing GST. This spreadsheet has extra sheets on here so it will create an automatic journal for the senior bookkeeper to use.