Traditional accounting systems have you enter your data in a ledger format where there is a debit and a credit. Accountants have done this for hundreds of years; the first evidence of a double-entry bookkeeping system dates to the year 1300 (Source: Wikipedia).
What’s different in Xero is that one side of the debit/credit entry is already handled for you when it comes to banking and credit card transactions. You have three choices for each transaction:
In Xero, you use matching when the transaction has already been entered in Xero, such as an invoice that is awaiting payment or a check you are waiting to clear the bank. When the transaction comes in via the bank feed, all you have to do is accept the match that Xero presents to you automatically.
The beauty of matching is it is at least twice as fast as most other accounting systems. Your bookkeeper will save considerable time.
If there is no matching transaction in Xero, you can choose Create, which will record the new transaction. In this case, you’ll need to enter the customer or vendor name plus the account that you want the other side of the bank transaction coded to.
For example, if a transaction comes through that is a bank charge or bank draft that is not previously recorded, then you can use create to enter it. In the case of the bank charge, you’ll enter the account Bank Fees and the bank name.
The third choice is a transfer. This is when money is moved from one bank account to another. All you’ll need to do to record the transaction is to select the bank account.
Look, No Data Entry!
These three coding options are at the heart of how Xero saves business owners and bookkeepers so much time. Since the bank feed side of the transaction is taken care of, all you have to do is code the transaction.
If you keep your books via the accrual basis where you enter your invoices and bills ahead of when they are received or paid, then you will use matching most often. If you wait for the transaction to hit the bank, which is similar to cash basis bookkeeping, then you will be using the “create” function most often.
Is Xero Right for You?
If you haven’t seen this part of Xero, you’re in for a treat. Give us a call, and we’ll set up your free demo today.