Welcome to the world of Xero Accounting Software 2023, where you can unleash your accounting hero powers. In this blog post, we will explore the process of entering purchase orders, also known as POS, using Xero. Whether you’re a business owner, accountant, or aspiring financial wizard, this guide will help you navigate the purchase order functionality in Xero and empower you to manage your inventory effectively.
Setting Up Your Xero Homepage: To begin, let’s access our custom Xero homepage and enter the company file we previously set up. Within the homepage, we can duplicate tabs to organize our reports. By right-clicking on the tab at the top, we can easily duplicate it. We’ll create duplicate tabs for the balance sheet report and the income statement, also known as the profit and loss statement, to keep track of our financials for the year 2023.
Entering Beginning Balances: Before diving into purchase orders, it’s crucial to enter the beginning balances. These balances represent the initial state of your accounts and can be imported from a prior accounting system. To do this, we’ll adjust the range at the top of the report and specify the custom range for the year 2023. Once updated, the balance sheet will reflect the beginning balances, setting the foundation for accurate financial tracking.
Understanding the Purchase of Inventory: Now that we’ve laid the groundwork, let’s focus on buying inventory. As a business that sells guitars, it’s essential to procure inventory to fulfill customer orders. In accounting terms, purchasing inventory involves recording expenses and managing assets. We need to track the inventory we purchase as an asset until we sell it and record the corresponding expense.
Choosing a Method: Periodic or Perpetual Inventory System: There are two primary methods to track inventory in Xero: the periodic inventory system and the perpetual inventory system. In the periodic inventory system, inventory is managed outside Xero, typically in spreadsheets or specialized inventory management programs. Periodic adjustments are then made in Xero to reflect inventory changes. However, we will focus on the perpetual inventory system, where all inventory tracking occurs within Xero itself.
The Role of Purchase Orders: In the purchasing cycle, purchase orders play a vital role. A purchase order is a form used to request inventory from a vendor. In certain scenarios, the vendor may ship the inventory before receiving payment, demonstrating trust and a stronger purchasing position. By entering purchase orders in Xero, we can track our requests and compare them to the received inventory to ensure accuracy.
Entering Purchase Orders in Xero: To enter a purchase order in Xero, you can either use the “Purchase Orders” option in the business dropdown or access it directly from the transactions dropdown. Within the “Purchase Orders” section, you can create a new purchase order. Let’s say we’re purchasing 20 guitars from our vendor, Epiphone.
Tracking and Receiving Inventory: Once the purchase order is created, we can track it within Xero. However, a purchase order itself does not have a direct impact on the financial statements. Its purpose lies in facilitating the comparison and verification process when we receive the inventory. When the guitars arrive, we can reconcile the received items with the purchase order and proceed to create a bill or make a direct payment.
Setting Up Your Xero Homepage: To begin, let’s access our custom Xero homepage and navigate to the company file we previously set up. By duplicating tabs and organizing reports, we can have quick access to essential financial information such as the balance sheet and income statement for the year 2023. With these reports, we can track our financial progress effectively.
Understanding Inventory Management: Before we delve into purchase orders, it’s crucial to understand the importance of inventory management. Unlike cash-based systems, Xero allows us to track inventory using an accrual-based approach. This enables us to align the expense of inventory (cost of goods sold) with the revenue generated when selling the inventory, providing accurate financial insights.
Purchase Orders in Xero: When purchasing inventory, it’s essential to create a purchase order. In Xero, you can access the purchase order form through the business dropdown menu or the transactions dropdown. Once inside, we can input relevant details such as the vendor name (e.g., Epiphone or Gibson), the date, delivery date, purchase order number, and select the appropriate template.
Adding Inventory Items: To track inventory effectively, it’s crucial to have set up your products and services in Xero beforehand. When creating a purchase order, you can select the desired items from the inventory list. For example, if we’re buying Epiphone guitars, we can add specific models like Epiphone Les Paul, Epiphone Riviera, Epiphone Semi-Hollow Body, or Epiphone Standard Pro. Specify the quantity and the cost per item to calculate the total cost automatically.
Address and Additional Details: Ensure that the postal address is correct and matches the vendor’s information. Xero will populate your default address, but you can choose an alternative address if needed. Include any relevant delivery instructions or notes in the designated sections to provide clarity to the vendor.
Review and Approval: Once you’ve added all the necessary details, review the purchase order for accuracy. If everything looks good, approve the purchase order. Note that approving a purchase order does not impact the financial statements, as it is a document for vendor reference only.
Managing Purchase Orders: Xero conveniently keeps track of all your purchase orders under the purchase order section. You can access this section through the business dropdown menu or the transactions dropdown. Here, you can view the status of each purchase order, including whether it’s a draft, awaiting approval, or approved.
Expanding Your Inventory Management: As your business grows, you may need to create purchase orders for different vendors or add new inventory items. With Xero, you have the flexibility to streamline your inventory management and easily generate bills once the inventory is received.
In the fast-paced world of business, efficient inventory management is crucial for success. With the help of Xero accounting software, you can streamline your inventory tracking process, making it easier to manage purchases, sales, and stock levels. In this blog post, we will explore how to create purchase orders and introduce a new vendor, Gibson USA. Let’s dive in and see how Xero simplifies your inventory management tasks.
Adding a New Product: To begin, let’s add a new product to our inventory on the fly. We’ll call it the Gibson SG, with a product code of GESB. The purchase price for this item is $598, and we will not apply any tax on the purchase side. On the sales side, we’ll set the sales price to $777 and assign it to the sales account, subject to a 5% sales tax. Remember to enable inventory tracking for this item by selecting the appropriate inventory asset account. Once you’ve saved the details, the system will generate the cost of goods sold account and the inventory account automatically.
Creating a Purchase Order: Now that we have the new product set up, let’s proceed to create a purchase order for the Gibson SG. In the purchase order form, specify the quantity of items to purchase, in this case, 10 units, totaling $5,980. Verify that the address details are accurate and proceed to approve the purchase order. Keep in mind that the purchase order’s approval doesn’t directly affect the financial statements; it serves as a reference for the vendor.
Managing Purchase Orders: Xero conveniently organizes all your purchase orders in one place. To access them, go to the purchase order section either through the dropdown menu or the transactions dropdown. Here, you can view the status of each purchase order. In our case, we have two purchase orders, one for Epiphone and the other for Gibson USA. You can also perform various actions, such as copying the purchase order to a bill or creating an invoice, once the items are received.
Vendor Contacts: Xero allows you to keep all relevant information about your vendors organized within the system. By accessing the contacts section, you can find a comprehensive list of your suppliers, including Gibson USA. Clicking on a specific vendor’s name will display their contact details, including any associated purchase orders.
Conclusion: Efficient inventory management is essential for any business, and Xero accounting software provides the tools you need to simplify the process. By creating purchase orders, tracking inventory, and managing vendor contacts, you can stay on top of your inventory levels and streamline your operations. With Xero’s user-friendly interface and powerful features, you’ll have more time to focus on growing your business and providing excellent service to your customers. Embrace the power of Xero today and take control of your inventory management.