Reconciling money in

Money coming in can be one of the following:
• Donor grant
• Private donation or membership subscription
• A transfer from another bank account for your organisation
• Interest payment for the bank account being reconciled
• Refund on a payment made earlier
• Transfer to your organisation of money to be held in trust for someone else. (If for an individual, these should really be paid directly into a “Client Account” but this may happen by mistake. See “Client account” section under Other for more on handling money for beneficiaries.)

Private donations

Generally these donations will not be restricted in any way and can be taken as income immediately. By the same token, it is very unlikely that any of the payments will be being made against a pre-existing invoice. (If you believe these conditions do not apply, then look at the “Donor grant” section for guidance.)

All that needs to be done is to allocate the payment to the right account code. Allocate these donations to the appropriate Revenue code (such as 261). If you want to differentiate between 2 or more different types of donor in this category, then use a different revenue code for each.

I assume your accountant has set up these codes for you. Let me know if you feel setting up accounting codes should be included in the guide.

Donor grants

See the section: “Accounting for donor grants” in particular as regards:

  • Whether an invoice needs first to be created (if not already done)
  • Dates and values of such invoices
  • Whether a donor/project code needs to be used (and created if not already done)

Note that this guide advises creating invoices for income intended for use during specific time periods.

Unrestricted grant not requiring an invoice

Unless the money is received near year end and is really intended for the next financial year, enter the transaction with the appropriate Revenue code (such as 260 – Grants) and no coding for donor/project or funding type.

If the money is received near year end and is really intended for the next financial year, enter the transaction with account 810 – Income in advance and no coding for donor/project or funding type.

Unrestricted grant requiring one or more invoices

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

Do not allocate a payment against an invoice dated in the future or an invoice to be created in the future. This messes with the transparency of the accounts. See section below for help on such cases.

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 invoice or Receive Money transaction to reconcile with. In the shot below, we illustrate a partial payment against the invoice, which requires clicking on the “Split” message which appears once the invoice line has been checked.

Xero will prompt the payment value as the split value. (You could enter a different value and allocate the remainder to something else, if appropriate – not illustrated here.)

In relation to small discrepancies between the money received 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.

With the full value of the payment allocated to one or more invoices or Receive money transactions, the Xero form then allows you to finalise the reconciliation:

If an invoice first needs creating, create one or more invoices per the advice in “Accounting for donor grants” and then follow the guidance above.

Payment for invoice dated in the future or an invoice to be created in the future.

Do not allocate a payment against an invoice dated in the future or an invoice to be created in the future. This messes with the transparency of the accounts. You need instead to create a Receive Money Prepayment transaction. Code this to 810 – Income in advance. Allow the system to create a related “Invoice number”, and allocate Donor/Restricted coding as normal. (There is guidance on matching this to an invoice when the time comes for that https://central.xero.com/s/article/Apply-a-prepayment-to-a-sales-invoice .)

From the second section of the “Find and Match” form click New Transaction and then “Receive Money”:

Then click the drop down arrow by Received as Direct Payment in order to select “Prepayment”.

This will then create a new invoice entry and thus invoice number. Do not edit the default invoice number. The Account field will go blank. Set it to 810 – Income in advance. It will be helpful to add some description to explain what is going on. (In the case of restricted funding also add coding for Donor/Project and set Funding type to Restricted.)

You can then Save Transaction.

Then reconcile the payment with the new Receive Money transaction:

Restricted grant not requiring an invoice

Unless the money is received near year end and is really intended for the next financial year, enter the transaction with account code 260 – Grants. Add coding for Donor/Project and set Funding type to Restricted.

If the Donor/Project is not on the drop down list, consult with your finance administrator about creating a new Donor/Project name. Note that you can do this via the tracking code box by clicking “Add new tracking option”. Note also that you can filter down the list by starting to type the donor/project name.

If the money is received near year end and is really intended for the next financial year, enter the transaction with account 810 – Income in advance. Add coding for Donor/Project and set Funding type to Restricted.

Restricted grant requiring an invoice

Follow the guidance above for “Unrestricted grant requiring one or more invoices”. Nothing more should be required as regards reconciling the payment. The Funding type and Donor/Project coding should be applied to the invoice when created. Hence if creating an invoice before reconciling the payment, add the appropriate Donor/Project coding and set Funding type to Restricted.

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”.

Interest payment for the bank account being reconciled

Code as 270 – Interest income

Refund on a payment made earlier

See the section on “Refund from a supplier”.

Transfer to you of money to be held in trust for someone else

If the payment (for someone else, say a partner charity) comes from the donor along with money due to you, then treat (per guidance in “Accounting for donor grants“) as income to you from that donor. Enter the gross value of grant as 260 – Grants.

If not already done, create a bill with the partner organisation as customer and with the value due to the partner coded as 310 Partner grants  (Changed from “Cost of Sales”). In due course, payment to the partner should be matched to this bill. (Note I assume that you are unlikely to get money for partner charities unless some of the grant is intended for you as well.)

If the payment is meant for use by individual beneficiaries (“clients”) see the section on Client account issues.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s