Welcome to the Fit Small Business Xero training course! In this lesson, we’re going to cover how to set up account balances in Xero if you are converting from an accounting software program other than QuickBooks.
If you are brand new to accounting software then you will only have bank and credit card accounts that need to be set up. You can head over to the How to Set Up Bank Feeds lesson for more info.
You can follow along on your own Xero account. If you don’t have one already, click here to sign up for a free 30-day trial. Fit Small Business readers also receive 50% off their first three months if they decide to subscribe.
To complete this lesson, you can either watch the video below, read through the step-by-step instructions, or do both. Let’s begin!
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Why It Is Important to Set up Account Balances
In a previous lesson, we showed you how to import your chart of accounts. In that lesson you had the option to include your account balances, but we did not recommend doing this just yet (unless you’re an experienced bookkeeper.)
In this lesson, we’ll explain how to add account balances in full detail, so even a beginner can make sure they’re doing it correctly. As we discussed in the chart of accounts lesson, the accounts are the heart of the system. If the amounts posted to the accounts are not correct, then the financial statements will be inaccurate.
In this lesson, we will discuss the information that you need to have handy so that you can enter account balances for unpaid invoices (accounts receivable), unpaid bills (accounts payable) and any other accounts that have balances in your existing accounting system.
Info You Need to Set up Account Balances
Before you can set up account balances, you will need to establish your conversion date and have a few documents handy. We will discuss what the conversion date is first, and then talk about the documents that you need to have available.
Your conversion date is the day that you will start keeping track of all transactions, such as invoices and bills, in Xero.
In general, this date should be the first day of a month (i.e. January 1). If for some reason you are not setting up Xero at the beginning of the year, then use the first day of the month that you start tracking your daily transactions in Xero. (Note: you can also use a past date as your conversion date — e.g. if it’s April, you could still use January 1st, provided you’re able to enter all transactions that have taken place since January 1st.)
In Organization and Financial Settings, we provided you with a checklist of documents that you need to have handy to set up Xero. Next, we will discuss 6 documents from that checklist that you will need in order to set up account balances.
1. Trial Balance Report
The Trial Balance report shows the current and YTD balance for each account on your chart of accounts list as of a specific point in time (i.e. Dec 31). Every accounting program should have this report available. Below is a sample of a Trial Balance report for our fictitious company, Acme Web Pros Plus.
2. Unpaid Invoices
In order to set up the accounts receivable balance in Xero, you need to have copies of all customer invoices that have not been paid as of your conversion date. Later on, you will enter each invoice into Xero and confirm the invoice total matches your accounts receivable balance as it appears on your trial balance report.
3. Unpaid Bills
To establish the correct accounts payable balance in Xero, you need to have copies of all unpaid bills as of your conversion date. Later in this lesson, you will enter each bill into Xero and confirm that the total of all bills entered matches your accounts payable balance as it appears on your trial balance report.
4. Bank/Credit Card Statements
In order for you to properly reconcile your bank and credit card accounts, you will need to enter the balance of all bank accounts and credit card accounts as of your conversion date. This information will come directly from the monthly statement that you receive from your bank or credit card company. Be sure to use the statement that is closest to your conversion date. We will not enter any bank/credit card transactions in this lesson. However, be sure to check out the How to Set Up Bank Feeds lesson to learn how to import these transactions into Xero.
Note: Most bank and credit card statements will have a beginning and an ending balance. The balance that you should enter depends on the date of the bank statement. Use the following guide to help you determine which balance to use.
Quick Reference Guide: Which Balance to use from Bank/Credit Card Statements
|If your bank/ credit card statement is dated prior to your conversion date then, you will use the...||If your bank/credit card statement is dated after your conversion date then, you will use the...|
|Ending Balance on the bank/credit card statement as the account balance in Xero.||Beginning Balance on the bank/credit card statement as the account balance in Xero.|
Example: Let’s assume that Acme Web Pros Plus has chosen January 2017 as their conversion date. Acme will enter balances from their December 31, 2016 bank and credit card statements. Since the statement date (December 31) is prior to the conversion date (January 2017), Acme will use the ending balance that appears on their December bank and credit card statements.
5. Tracked Inventory Balances
If you have products that you track quantity and cost for (tracked inventory) then you will need to set up the existing quantity and cost as of your conversion date. Before you can set up these balances, you must set up the products in Xero first. Once you have done that, you are ready to enter opening balances for tracked inventory items. Follow these step by step instructions to properly set up inventory balances.
6. Sales Tax Balances
If you track sales tax in your current system using more than one account, you will have to add up the total of all sales tax accounts and enter that one number into Xero. Xero only uses one account to track sales tax. In the How to Set up Sales Tax lesson, we cover how to set up, track and pay sales tax.
How Do I Set Up Account Balances
Follow these steps to enter your account balances into Xero.
Step 1 – Navigate to Input Screen
From General Settings, select Conversion Balances as indicated in the screenshot below.
Step 2 – Set the Conversion Date
Click on the Conversion Date button as indicated in the screenshot below.
- In the following screen, you will select the month and year of your conversion date.
- After you complete step 1, the date that appears here will be the date that you need to run your Trial Balance report (in your old system) so that you can enter the balances in the next step.
- Don’t forget to Save your work.
Step 3 – Enter Account Balances
Within this screen, you will enter the account balances for all accounts that you currently have a balance for in your existing accounting system. See a brief explanation below.
- Enter balances – The default accounts that are shown here are checking account, accounts receivable and accounts payable. You can click directly in the debit or credit column to enter each account balance. When you enter a balance in accounts receivable and accounts payable, Xero will take you to another screen to enter each invoice or bill.
- Add a new account – If you have a new account that you need to enter a balance for, you can add the account here, and then enter the balance. In the How to Set Up a Chart of Accounts lesson, we discuss in detail how to add, edit and delete accounts.
- Show all accounts – If you need to enter balances for other accounts on your chart of accounts list, just select this option and all of the accounts that you set up in Xero will be listed here.
- Adjustments – This field will show the difference between debits and credits. Since debits and credits should be equal once you are done, this amount should be zero. If it is not, check out tips for entering account balances.
- Lock balances – Once you have entered all of your account balances, we recommend that you lock the balances as soon as possible so that no further changes can be made. This will help to ensure that your financial statements are accurate.
Note: If you are not able to enter all of your account balances at once, you can come back at anytime to enter them. However, we recommend that you complete this before you start entering transactions into Xero.
- Save – Click the “Save” button to save the balances that you have entered.
Entering Unpaid Invoices and Bills for Conversion Balances
When you enter a conversion balance for accounts receivable or accounts payable in the previous step, Xero will take you to another screen where you can enter each invoice or bill. Once the total amount of the invoices or bills matches the conversion balance, you can click Match. See the screenshot below:
That wraps up the section on how to set up account balances. The next lesson in our Xero Training Course will be how to invite users. In this lesson, we will walk you through how to give your bookkeeper or tax professional access to your Xero account. To access this lesson or any of the others in the series, click here. For a free 30-day trial of Xero, click the button below.