Let Xero Supercharge your bank reconciliation

The trouble with trying to pick a "favourite" cloud-based bookkeeping service is that they all have unique things that make them stand out.

In Xero, at least for me, their standout feature is bank rules. Most services will automatically pull down bank transactions. Some of them will even "learn" how to categorize some of your transactions over time. Xero's implementation is my favourite.

Xero lets you create rules. These rules let you auto-categorize transactions as they come in based on several criteria. Instead of trying to explain it all by text, let me show you.

Here's a transaction that was downloaded from my PayPal account.

xero bank reconciliation

As you can see, Xero pulled down the date, the payee (PayPal), the description (Fee), and the amount ($9.22). PayPal fees are a common transaction in this account. Instead of having to manually categorize these each time, let's create a rule.

Click on the "Create rule" button at the top right of the transaction details. That will bring you to the Bank Rules screen. It's so powerful, I can't get you a screenshot that covers the full set of options. There are 7 different sections to each rule. Here are the first 4.

xero bank rules

xero bank rules 2

1.. The first part is the "IF" in a typical IF/THEN statement. This covers all the criteria your bank will provide that Xero can use to categorize the transaction. Some of these are going to be the same each time...others are specific to the individual transaction. I can't tell you how to handle each of yours, but I'll use this PayPal transaction as an example.

What you see above is what Xero filled in. We're going to change this a bit.

  • Let's keep the Payee equals PayPal.
  • We'll remove the Reference equals. That will be different each time.
  • We can also keep the Description equals Fee.

What this means is that anytime a transaction from "PayPal" shows up with "Fee" in the description it will trigger the next parts of the rule.

2.. You've got 3 choices on how to set the payee.
* The payee from #1 will be used.
* You can select a payee or create a new one.
* You can opt to wait and fill it in during reconciliation.

3.. You can skip this step unless the transaction is for an asset purchase.

4.. This is where you set the category. In this example we're just going to put "Merchant Fees" in the Account field, and leave the rest as is.

5.. You can leave this setting as is, unless you want to fill in the reference during reconciliation.

6.. In this example we're going to keep this as PayPal. However, if you're setting up a rule for a transaction that happens across multiple accounts, you can change this to "all bank accounts".

7.. Finally, we need to give the rule a name. PayPal is fine, but since there might be more than 1 rule associated with PayPal, something like PayPal Fees might be more appropriate. Click Save.

And that's it. Here's what you'll see once you've saved it.

xero bank rules 3

Now let's go back to the bank rec screen and see what it looks like.

xero bank reconciliation 2

See the difference? Now, instead of having to fill in each value, Xero just asks you if you want to apply the PayPal Fees rule. All you have to do for any future PayPal fee is click OK and it gets properly categorized.

Final tip:

The way Xero categorizes the info from the bank accounts can vary. For example, sometimes the "description" from a bank transaction gets placed in the "Description" field; other times it gets placed in "Reference". You can edit this in the bank import settings (maybe I'll cover this in another post), but there's a way to cover your bases here.

In #1, click on the dropdown menu that shows "Description". Instead, select "Any text field". Now the rule will still run even if the description was saved to the "Reference" field instead.

Happy reconciling!

Moving Your Books Online - Your Stories Wanted

suggestion boxes

I have recently started working on a project, and I'd like your input.

In the past few years, I have been helping people get started with online bookkeeping. Some were just getting started with their business, while others were making a move from an offline application. In all cases, there were obstacles along the way.

I'd like to spend more time on this site focussing on helping as many people with that process as possible. Just getting started with any bookkeeping can be tough, but there are also unique problems with moving your books online.

Here's where you, my amazing readers, come in.

I'd like to hear your stories. Your joys, your pains, your questions, and your answers.

It can be as simple as a couple words, or as detailed as a 500+ word email...your choice. I just want to hear your stories. If you want others to be able to see them too, please leave your answers in the comments below. If not, you can contact me directly instead. Or, if your answer is summed up in less than 140 characters, you can always send me a message on Twitter too.

Here are some examples of questions I'd like you to answer for me.

  1. My favourite cloud-based bookkeeping service is__.
  2. I recently switched from _ to __.
  3. The best/worst thing that happened since I moved my books online is _.
  4. I'm trying to get started online, but I'm really struggling with _.

Feel free to write about these or anything else that comes to mind. My goal here is to come up with some posts and (in the near future) guides that will help you solve some of these common problems.

I'm really looking forward to your responses.

5 Things You Give Up When You Move Your Bookkeeping Online

I made a big jump back in 2010. I decided to try out a few online bookkeeping services...just for fun. I had never considered them a viable alternative to my QuickBooks, but thought it would be an interesting experiment.

Fast forward almost 4 years and I'm using Xero, Freshbooks, Kashoo, and Wave every day. I still use QuickBooks, but it doesn't represent the majority of my time anymore.

That's not to say this change didn't come with some trade offs. Working almost entirely online is very useful, but there are going to be some features and conveniences you will give up when making the switch.

Before you make the jump, here are a few things you'll need to be prepared to give up or change.

  1. Data entry speed
    This one isn't maybe. If you do a lot of data entry in a desktop app like QuickBooks, you are going to find it slower working online. The app you have installed on your computer doesn't care if your internet is slow. You can work at home or at a campground and you'll get the same performance. Unless you're running a seriously old computer, you are going to find working online slower than what you're used to. This is especially true for bookkeepers and accountants. If you're used to ripping through a stack of receipts like it was nothing, you are going to feel the difference. I've tried a ton of bookkeeping services, and no matter how good their interface is, they just can't replicate the speed of a local application. Some of the reasons are found in my second point.

  2. Keyboard shortcuts
    This will be more for the power users out there. QuickBooks has a few really useful keyboard shortcuts to help you speed through large stacks of paperwork. Once you learn them, you will really miss them when you move online. Some online services incorporate them. So far, Kashoo is the only one to incorporate my favourite...Ctrl+Enter. In QuickBooks, when you're ready to save a bill or invoice, you press Ctrl+Enter and it saves the invoices and starts a new one. I hate having to take my hands off the keyboard to click the Save and New button. If you enter one or two bills into your software every day, it's not a huge deal. If you have to get through hundreds of bills each day, it quickly takes a toll on your productivity...not to mention the RSI issues. So, if you're used to hitting Ctrl+W to write a cheque, or Ctrl+Del to delete a line...I'm sorry to say those days are now behind you.

  3. Powerful, customizable reports
    QuickBooks, at least the version I use, has spoiled me on reports. If you really fill in all the details into every bill or invoice, you can pull out some really great information for yourself or your clients. And, what you can't do directly from a one-click report can be achieved by combining the results of a couple in Excel and working some magic. The point is, QuickBooks lets you track a lot of details. One big example is Class Tracking. If you want to split up your company into departments, and track each one's profitability, you won't find that in many of the online options. Xero has a version of it, which is nice, and Netsuite (more suited to bigger businesses) also has the feature. It's out there, but just don't expect that it will be the norm. Most online options will give you a list of reports you can pull...some better than others. The big problem you'll come across is that most of them aren't as customizable as the one's you'd find in QuickBooks.

  4. Backup I've got all of my client's QuickBooks files set to backup automatically whenever I close the app. It keeps the last 10 (date stamped) versions of the backup somewhere safe, and that folder gets backed up automatically each day. Of course, the reason for that is that QuickBooks used to have a problem with data corruption...especially on large client files. I haven't had a big problem in years, but it's nice to have those backups just in case. Online, your backups are handled by the company hosting the service. I don't get a backup file saved locally from FreshBooks or Xero. And, to be honest, I've only had to deal with an issue once where I needed something restored. I do wish I could have those local backups though. If there was ever a problem, or if the service shut down, I would prefer having a file on my computer that I could restore from. Maybe there are some out there that provide that option...I just haven't come across it yet.

  5. Accountant workflow
    This isn't a loss, but more of a change. If you (and your accountant) are used to sending them a copy of your QuickBooks file at year end, this new system will be different. There's no "file" to send. In this case you can either download reports or give them access to your account. More modern accountants won't have a problem here. Some accountants are fine with this change...others aren't. Make sure to speak to them before making the change so you know how to handle year end.

"There's no free lunch"

Gaining the ability to collaborate in real time with your clients and their data is incredible for both sides. Bookkeepers don't get a frantic call on the weekend demanding that reports get sent over from the local QuickBooks file. Owners don't have to remain in the dark until the next meeting with their bookkeeper. And, with the ability of many services to download your bank transactions automatically, you gain a lot by going online.

I just want to make sure you're aware of the cost you pay for this convenience.

If you know of any other points that you found when making the change, let me know in the comments. I'd also love to hear from companies offering these services if you have been able to address all (or some) of these issues.

Tell Me About Your Bookkeeping System

Today I come to you, my readers, with a question.

I have spent the last 3+ years testing out different cloud-based bookkeeping options. Sometimes I just give them a few days "test run". Other times they have impressed me enough to be added to my official bookkeeping toolbox.

At present, I have 4 main services that get daily use. They are, in no particular order.

  1. Freshbooks
  2. Wave Accounting
  3. Kashoo
  4. Xero

There are others that I like, but just haven't had the free time to truly test out. I'm really interested, for example, to give the 2 big names a shot. QuickBooks Online hasn't been particularly powerful up here in Canada compared to its US counterpart. And, since it's not part of the QuickBooks ProAdvisor program up here like it is in the US, it's not an extra expense I can justify given the fact that I don't have any clients using it. I also just found out that Sage has a cloud-based option too. Not sure how I missed that, but I guess I don't deal with Sage all that often.

If either of them have something worth talking about, I'll be sure to let you all know.

What I'd really love to know is what you use. Don't stop at cloud-based options. If you're using QuickBooks, Sage, Excel, or a good ol' ledger book, I'd love to hear about it. And, beyond that, let me know if you're happy with your current system.

You can leave a comment right here, or contact me directly instead. If I get enough responses, I'll write up a follow up post with a summary of what you've told me. Don't worry, no personal info will be shared...just a list of what seems to be popular out there.