Welcome to the world of accounting heroism with Xero 2023! In this guide, we’ll explore the process of receiving payments from invoices and making deposits using the powerful features of Xero accounting software. Whether you’re a small business owner, freelancer, or accountant, Xero provides the tools you need to streamline your invoicing and payment workflows. Join us as we delve into the step-by-step process of handling invoice payments and deposits in Xero 2023.
Setting Up Your Xero Homepage: To begin, let’s access our custom Xero homepage and navigate to the company file we previously set up for our demonstration. We’ll duplicate some tabs to organize our reports effectively. Right-click on the tab at the top, select “Duplicate,” and position it in the middle. Repeat this process for other tabs we want to duplicate, such as the balance sheet and income statement. Ensure that the dates are set correctly for the year 2023 to align with our practice problem. We can now proceed to the next step.
Understanding the Revenue Cycle: Before we dive into receiving payments on invoices, let’s gain a clear understanding of the revenue cycle. The revenue cycle may vary depending on the nature of your industry. In a simple scenario, such as receiving income from platforms like YouTube, you can record a deposit directly through bank feeds and recognize the income simultaneously. However, if your business involves a cash register, like a food truck, you’ll need to utilize a “receive payment” form at the time of service. In cases where you need to bill clients, such as in the online world, you’ll typically create and send invoices, followed by receiving payments on those invoices. In this guide, we’ll focus on the process of receiving payments on invoices.
Handling Different Payment Options: When creating invoices, it’s essential to consider the various payment options available to your clients. Xero allows you to set up different payment portals, such as PayPal, credit cards, or bank transfers. Clients may choose to pay you through these portals or opt for alternative methods like sending a check. The payment you receive may not always match the exact amount of the invoice, especially when using third-party platforms or payment processors. In such cases, grouping payments together using a clearing account becomes necessary. Xero provides functionalities to assist with grouping invoices, but a clearing account can also be employed. This ensures accurate representation when reconciling transactions with your bank account.
Receiving Payments on Invoices in Xero: To receive payments on your created invoices in Xero, follow these steps:
- Access the “Business” dropdown menu in the top navigation bar.
- Choose “Open Invoices” to view all outstanding invoices awaiting payment.
- Alternatively, you can navigate to the “Contacts” section, select a specific customer, and view their invoices there.
Once you locate the relevant invoice(s), proceed with the following options:
- Method 1: Directly record the payment within the individual invoice:
- Select the desired invoice and click on it.
- Look for an option to record the payment directly within the invoice.
- Enter the payment details, such as the amount and payment method.
- Method 2: Utilize the “Invoices” tab:
- Access the “Invoices” tab in the main navigation bar.
- Locate and select the specific invoice(s) for which you want to record payments.
- Enter the payment details, including the payment amount and method.
Remember to follow your preferred workflow consistently for efficient record-keeping and organization.
In Xero accounting software 2023, receiving payments from invoices and making deposits is a crucial part of managing your business’s financial transactions. Let’s explore how you can efficiently handle this process in Xero.
First, let’s navigate to the Xero homepage and access your company file, such as “Good Great Guitars.” To organize your reports, you can duplicate tabs by right-clicking on the tab and selecting the “Duplicate” option. This way, you can have different reports open simultaneously.
To begin receiving payments for your invoices, it’s important to understand your revenue cycle, which depends on your industry and how you receive payments. Xero provides flexibility for different payment options, such as connecting PayPal, credit cards, or bank transfers, or receiving checks and other forms of payment.
If you typically invoice clients and receive payments based on those invoices, you’ll need to create an invoice, send it to the client, and then receive the payment. Xero allows you to manage this process seamlessly.
To start, you can review your open invoices by going to the Business dropdown and selecting “Open Invoices.” This will display the invoices that are awaiting payment. Alternatively, you can access the invoices through individual contacts in the Contacts section.
Once you have identified the invoice you want to receive payment for, you can choose to go directly into the invoice and record the payment. However, it’s often more convenient to access the Invoices tab under the Business dropdown.
Within the Invoices tab, you can select the specific invoice that requires payment. If you have multiple invoices to receive payment for at once, you can choose them together and use the deposit form to consolidate them. For this example, we’ll focus on processing one invoice at a time.
Upon selecting an invoice, you can proceed to make the deposit. Click on the “Receive Payment” option to create a deposit form. Specify the date of the deposit, such as January 25, 2023, and provide a reference for easy identification, such as “Deposit.”
Next, you need to choose the bank account where you want to record the payment. Instead of selecting your checking account, we will use a clearing account to demonstrate how to handle multiple payments from different invoices. Designate the cash clearing account for this purpose.
After selecting the clearing account, you will see the details of the invoice, including the customer’s name. You can even click on the invoice link to view the details of that specific transaction.
Since we are using a clearing account, the deposit will increase the cash clearing account and decrease the accounts payable. This action will also reflect in the sub-ledger for accounts payable, specifically for the customer associated with the invoice.
Finally, click on “Make Deposit” to complete the process. It’s advisable to update the balance sheet to ensure all changes are reflected accurately. You will notice that the clearing account balance has increased, indicating the received payment is currently held there.
To verify the impact on accounts receivable, you can access the Accounts Receivable sub-ledger. Right-click on the first tab, duplicate it, and navigate to the Reports section. Look for the Aged Receivable Summary report to review the changes in accounts receivable balance.
Additionally, you can monitor open invoices through the Business dropdown and the Invoices tab. The invoices awaiting payment will be displayed there, ensuring you have a clear overview of your outstanding invoices.
By following these steps, you can effectively manage the process of receiving payments for your invoices and recording them in Xero accounting software. Remember to adapt the process according to your specific payment methods and business requirements.
Xero empowers you to streamline your accounting tasks, making you the hero of your financial operations in 2023.
Step 1: Accessing the Waiting Payment Tab: To begin, navigate to the waiting payment tab in your accounting software. This tab displays invoices that are awaiting payment. Select the invoice you want to work with for this demonstration.
Step 2: Depositing Invoices into the Clearing Account: In this step, we will deposit the selected invoice into a clearing account. The clearing account serves as a temporary holding account for funds that will later be transferred to the checking account. Select the invoice and choose the option to make a deposit. Fill in the required information such as the deposit date and a reference for the deposit. Instead of depositing the funds directly into the checking account, choose the clearing account as the destination.
Step 3: Reviewing the Impact on Accounts Receivable: After making the deposit, you can update the balance sheet to see the impact on the clearing account and accounts receivable. The clearing account balance will increase while accounts receivable will decrease, reflecting the payment made. You can also generate an aged receivable summary report to track the outstanding invoices and their respective payment statuses.
Step 4: Depositing Additional Invoices into the Clearing Account: To further demonstrate the use of a clearing account, repeat the process by selecting another invoice and depositing it into the clearing account. Remember to update the balance sheet and review the aged receivable summary report to observe the changes.
Step 5: Transferring Funds from the Clearing Account to the Checking Account: Once you have deposited all the necessary invoices into the clearing account, it’s time to transfer the funds to the checking account. Use the transfer function in your accounting software to record the transfer from the clearing account to the checking account. Specify the date, amount, and any additional details you want to include. This transfer consolidates the individual invoice amounts into one lump sum, mirroring the amount that will appear on your bank statement.
Step 6: Updating the Balance Sheet and Bank Reconciliation: After completing the transfer, update the balance sheet to reflect the increase in the checking account balance and the clearing account balance returning to zero. By grouping the deposits together in the clearing account before transferring to the checking account, you simplify the bank reconciliation process since the amounts match what appears on your bank statement.
Step 7: Adding Notes and References: If desired, you can add notes and references to transactions for future reference. This can be helpful in providing additional details or clarifications about the transactions. Make use of the note field in your accounting software to document any relevant information related to the deposits or transfers made.
Conclusion: Understanding the purpose and process of clearing accounts in accounting is crucial for accurate financial record-keeping. By using a clearing account, you can conveniently group multiple transactions together before transferring the funds to your checking account, making bank reconciliation easier. Remember to review the impact on accounts receivable, generate relevant reports, and add notes for reference. With this knowledge, you can effectively manage your company’s financial transactions and maintain organized records.