In Xero’s chart of accounts, you can add and edit various fields for each general ledger account. These fields are not only for basic attributes like names and account numbers, they also determine the nature of each account and what happens to amounts that are posted to them.
In this tutorial, we will use Xero’s demo company to look at each of the account input fields and the effect they have on the dashboard and general ledger.
Chart of Accounts Section in Xero
To get to the right area of Xero, go to Accounting → Chart of accounts from the main menu.
Account Input Fields
Let’s click on the 270 Interest Income general ledger account to see the various fields available to edit and to get an idea of what they do:
In the pop-up box that appears, you can see the fields for the account and how they have been set up. Let’s run through each of the fields to give you some idea as to how you should set up or edit general ledger accounts in your Xero entity.
The Account Type is one of the most important attributes to set up for your general ledger accounts. The account type determines whether the account is an:
Within each of the above types, Xero gives you the ability to choose a sub-type. For Assets, you can choose whether an account is a Current Asset, Fixed Asset etc. The Interest Income account we are looking at has been assigned to the Revenue section as Other Income. This means that anything posted to this account will show up in the Revenue section of the Profit and Loss report.
Although this is an extremely important attribute, you can change it at a later date if you like, so there is no need to worry if you do not get it right the first time.
The general ledger Code is a number that determines where the account will show up on the list of general ledger accounts when the list is displayed in numerical order. While it does not determine whether the account is an asset, liability, revenue, expense or capital item, it is customary to number each account so it sits near similar accounts in the general ledger.
The Interest Income account we are looking at has been assigned the code 270. If you were to create a similar account – say Fee Income – you would want it to show up near Interest Income on the list of general ledger accounts, so you may assign it code 271.
You cannot use the same code more than once, so as long as code 271 is free, it would be suitable for a Fee Income account.
This field is self-explanatory. Here you can provide a short title of 150 characters or less for your account. It is a good idea to make the name fairly short but also precisely describe what the account is for.
The Name given to the Interest Income account we are looking at is a good one as it is both short and makes it obvious what types of entries should be posted to the account.
This is an optional field so you may choose not to fill it in for some of your general ledger accounts. If you are new to accounting and bookkeeping – or if you have a few accounts with similar names – you may want to use add descriptions to remind you of what the accounts should be used for.
This field is a bit trickier than the last few fields. The Tax field controls how amounts posted to the account are treated for tax purposes. If you are not familiar with the taxation system, it is worth getting advice from an expert. You do not want to end up paying the wrong amount of tax from setting up your tax codes incorrectly in your Xero chart of accounts.
Show on Dashboard Watchlist
If you tick the checkbox here the account will appear on the watchlist of your dashboard. The Interest Income account in the demo company has this option un-ticked by default. If we tick the checkbox, hit Save and click on Dashboard in the main menu, we can see that the Interest Income account now displays in our Account watchlist:
Show in Expense Claims
If you tick the checkbox here, your Xero users will be able to post expense claims to this general ledger account. The Interest Income account has this option un-ticked by default in the demo company, so let’s see what happens if we change it.
Tick the checkbox, hit Save and go to Accounts → Expense Claims from the main menu. Now click on New Expense to start a new expense claim. Scroll down to the Account field and click on it to bring up a list of the accounts you can make an expense claim against. Account 270 – Interest Income should be one of those accounts:
Enable Payments to this Account
By checking this box you will be able to select this account when you are making payments from invoices, bills and other transactions. There is no need to check this box for many standard revenue and expense accounts. This option is mostly used for accounts such as loans.