Money out

Entering bills

Bill or no bill?

It is not necessary to enter bills for all external expenditure. Payments to suppliers who do not normally invoice you generally do not require a bill to be entered unless there is a service supplied which spans the end of our financial year. (Examples would be petty cash expenditures, cash withdrawals, bank charges.)

Also, if you owe another party money (such as a partner in a funding proposal), then – even if they do not formally invoice you – , you should create an internal bill dated the day that in principle you owe them money.

Entering a bill

Xero guidance on this is here:

https://central.xero.com/s/article/Add-and-approve-bills#Web

Related screenshots:

As shown above, start typing the supplier name in the “From” box. Select the relevant name from the list that comes up. If this is a new supplier, keep typing the name as you want it entered and then click “+ New Contact” in the drop down.

Enter the date of the bill under “Date”, date due  – 1 month later unless the supplier indicates otherwise, and the suppliers bill reference under “Reference”.

If you have a digital copy of the bill to hand, click the file icon to the right of “References” and upload the copy.

In the lines of the bill, you will need to enter:

  • A description
  • Qty; almost always set to “1” and this has to be entered
  • Unit price
  • Accounting code
    • If the bill is for an item whose cost should be spread over some time (going into the next financial year) then DO NOT use an “Expense” accounting code; instead see the section on Fixed Assets and use the appropriate fixed asset code.
Costs attributable to a project

See the “Setting up..” sections of “Project Tracking” as background to this.

If some or all costs are attributable to a project, also enter in the bill values for:

  • Funding type: set to “Restricted”;
  • Donor/project (find the project in the drop down list, if necessary by starting to type the name)

It is important to understand that these cost allocations are captured in the bill and NOT in the payment of the bill. (In this regard payments of billed items differ from those of unbilled items.)

If the bill is for only one type of cost and (if relevant) all allocated to one project, then only 1 line in the bill is needed.

If only part of the bill is for one type of cost or only part for one donor, then you will need to break up the bill into the relevant parts. For example, imagine a bill for £90 for phone and internet to be accounted for separately: £30 for internet and £60 for phone, with, for some reason, only £40 of phone costs to be allocated to Donor X. We then need to enter 3 lines:

  • £30 for internet costs, no donor
  • £40 for phone costs, Donor X
  • £20 for phone costs, no donor.

To enter the account code, start typing (either the name or number) and then select from the drop down when the relevant code appears. The same procedure for Funding Type and Donor/Project, if appropriate. DO NOT ATTEMPT TO USE  the “Assign expenses to a customer” in order to allocate costs to a donor.

Note that all these categories (Accounting code, Funding Type, Donor/Project) allow you to “Add new accounting code/ tracking option”. DO NOT DO THIS without consulting. If uncertain about the coding to use, consult your Finance/Administration Advisor, who will add further codes if necessary.

When done creating the bill, click “Save and submit for approval” at the bottom left as shown below. (If you are the Approver, simply “Approve”, of course.)

Bills for service that goes into the last or next financial year

A bill this year covering service provided last Financial Year:

  • Expense the total bill as usual to the relevant accounting code as of the date of the bill.
  • Identify the amount of the bill relating to last year and ask an Advisor able to enter manual journals to enter that expense (and related Funding type and Donor/project) for last year, balanced by an Accrual of the same amount, with an automatic reversal of the entry at some date in the current year.

A bill this year covering service that extends into next year:

  • Identify the amount of the bill relating to next year and code this to “Prepayments & Accruals” instead of the normal expense code;
  • Ask an Advisor able to create a manual journal to enter that next year’s expense (and related Funding type and Donor/project) at the end of the service period covered, balanced by a reduction in “Prepayments & Accruals” at the same time.

Reconciling an unbilled external expenditure

If unfamiliar with bank rules and Xero automation features for bank transaction reconciliation, read the “Bank transaction reconciliation / General” section

Once you are sure there is no bill to set a payment against, the task is generally to associate the payment with a supplier and record the one or more accounting codes for the type of expenditure incurred. In the case of more than one accounting code, add extra lines to the transaction and split the value of the payment between them so as to have one line per accounting code.

In each of the lines of the payment, you will need to enter:

  • A description
  • Qty; almost always set to “1” and this has to be entered
  • Unit price
  • Accounting code
    • If the bill is for an item whose cost should be spread over some time (going into the next financial year) then DO NOT use an “Expense” accounting code; instead see the section on Fixed Assets and use the appropriate fixed asset code.
Costs attributable to a project

See the “Setting up..” sections of “Project Tracking” as background to this.

Unbilled expenditures can be allocated to a donor/project when the related bank transactions are reconciled and allocated accounting codes. The relevant tracking codes can be added at the same time.

If some or all costs are attributable to a project, also enter values for:

  • Funding type: set to “Restricted”; (There may be exceptions – see section: “Donor Project Reports”)
  • Donor/project (find the project in the drop down list, if necessary by starting to type the name)

Reconciling a billed external expenditure

If the relevant bill already exists and the bill value matches the payment, there is a strong likelihood that Xero will match the payment to the bill and show an “OK” for you to approve the matching.

If there is no such matching or the offered matching looks wrong, then Click “Find and Match” at the top right of the reconciliation panel. Then select the appropriate bill or Spend Money transaction to reconcile with. In the shot below, we illustrate reconciling a single payment against 2 bills by selecting the relevant bills from the list of unreconciled payments due.

The “Split” link on selected bills/Spend Money transactions allows you to allocate part or all the payment against only part of the respective bill.

In relation to small discrepancies between the money paid and the invoice, Xero offer the “+Adjustment” you see above in the matching panel. In general, I would advise not to use it. This video explains it, if you are interested:

The “minor adjustment” option splits off the difference in values to the balance sheet, which simply implies postponing a decision on what to do about it until you have forgotten what the money related to and why it is in the balance sheet. The other option – called “Bank fee” – is the same as using “New transaction”. So by way of process, just stick to New Transaction.

Employee related payments

Accounting for these costs is done automatically by Xero when the pay runs are performed.

For performing pay runs see the “Payroll” section.

Costs attributable to a project

For allocating employee costs to a project, see “Attributing salary related costs to a project” section in the Project tracking section.

Payments to HMRC (or other government)

These payments should generally be allocated to paying off “Payables”, in this case NIC Payable and PAYE payable. The payment therefore needs to be split between these accounting codes and care should be taken with any related bank rule to avoid the misallocation of cost. In fact a bank rule should probably be avoided as causing more trouble than it is worth.

To establish the correct split between tax (PAYE) and social insurance (NIC) use the P32 report available via Payroll/Taxes & Filings and then select the appropriate tax year at top right:

From here you can copy the values for PAYE and NIC into line rows for the payment transaction reconciliation, using the relevant month’s data.
You could well qualify for the NIC credit, Employment Allowance, which will appear in its own column (“Recoveries”) as a negative entry (“-980.74” in the shot) :

Copy this negative value into a third row in the payment reconciliation – which you could describe as “Employment Allowance” – and use the Employers’ National Insurance code for that line (NOT NIC Payables). This is necessary to reduce both NIC Payables and the NIC expense appropriately. See shot below.

Payments to NEST (or alternative pension provider )

These payments should be allocated to “Pensions Payable”. It should be possible to do this automatically via a bank rule without any ensuing problems.

Payments to staff

These payments should be allocated to “Wages Payable – Payroll”. It should be possible to do this automatically via a bank rule without any ensuing problems.

Refunds

See section on “Refunds”..

Payments on behalf of clients

See the “Client account issues” section.

A transfer from another bank account for your organisation

Click the Transfer tab on the reconciliation panel for the line item. Select the relevant bank account from with the radio button choice or drop down list and then OK the reconciliation:

Note, as indicated earlier, that we assume that bank accounts used only to hold funds in trust for beneficiaries are not integrated into Xero nor are their transactions included in your formal accounts. Movements of money between such accounts and any of your own bank accounts will NOT be treated as transfers but as payment to or from a “Contact”.

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