Every businessman knows how important it is to manage the transactions related to his business. One of the tasks of keeping your books of accounts of your business in order is to reconcile your accounts at the end of the month. This is especially important if your business transactions are ever audited by the Internal Revenue Service.
If you are thinking of implementing a new accounting software or want to see how the month end close process works, we will review 1 accounting software platform to simplify the process for you with Xero cloud-based accounting software.
When your business needs to document or verify account balances, this process is called reconciliation accounting. But not every business owner practice this.
Many hire a person to manage their business affairs or outsource this task to an outside professional. In this article, we discuss one accounting software platform to use – Xero. There are many such platforms available in the market for this purpose but this one is the most popular and easy to use.
How Xero Software works?
In Xero, there is no requirement of a roll up journal to bring the profit and loss balance back to zero at the end of the year. Xero’s reports are generated in real-time and reports such as profit and loss reports are run from the start of the financial year using the year end date you specify in Xero. At the start of a new financial year, unless you have made any transactions in Xero for that particular year, the profit and loss report will show zero.
You can ensure your accounts are up-to-date before the end of the financial year by using the process described below. We have provided this process to follow by Owner and Bookkeeper or Accountant. This is only a recommendation.
Steps to follow in the Year-end Process
Xero have a range of resources to assist you in having organized books for your accountant, but more importantly for you to have an accurate set of books to understand and gain insight to manage your business better!
Your books and accounts are a treasure trove of information, which tells you about the health of your business and also helps you know what areas you can work on to improve the financial efficiency, stability and ultimately financial results of your business.
Step 1: Review your Opening Balances-
If you transfer transactions to Xero part way through the tax year you will need to review the opening balance. This concerns both the company and your employees. You will need to ensure that any required opening balances are correctly entered into Xero to ensure that year-to-date figures across years are recorded correctly.
Step 2: Review your Payroll settings and reconcile-
Click into your payroll settings to review all information that affects your payroll reporting. If something goes wrong you can update these settings before processing your final payroll, be sure to take this opportunity to make sure any final employee payments and changes have been made.
We know that reconciling your posted payroll is a routine task for you, but it’s always a good idea to take a look at reports like P11, Gross to Net and Account Transaction Reports to make sure there are no unexpected surprises.
Step 3: Process your final pay run-
By clicking on Payroll > Pay Runs you are doing the same process for the entire tax year. Also, if you have no payments for the final period of the tax year, you can post a NIL pay run.
Be careful with your payment date here. For this submission to be recorded as the final submission for the tax year, your payment date must fall within the 12 months i.e. between 6th March to 5th April.
Whilst this final Pay Run is in draft, it’s a good idea to have a look at your employees’ pay slips to confirm year-end figures are correct.
Be sure to hit post by your final payment date, if you have a week, 53 Xero will automatically adjust the tax calculation for you. Xero will then automatically send an Employer Payment Summary (EPS) by 19 April, letting HMRC know that this is your final submission for the year. Isn’t it very simple?
Step 4: Share your employees’ P60s-
Once you’ve sent your final submission, you can download the P60 and share it with your employees. It is your duty as an employer to provide the same reports to your employees by 31st May.
Please note that the P60 report will only show the total taxable earnings to date, this may need to be double-checked if the figures given here do not match the year-to-date figures on your employee’s pay slip.
Step 5: Update Employment Allowance-
HMRC has revised who is now eligible to claim Employment Allowance from the start of the next tax year. If you still want to claim the allowance and meet the new eligibility criteria, you’ll need to update your payroll settings and let them know what industry sector your business falls into.
Step 6: Review your employees tax codes and NI category-
Look for our banner message on the Tax tab, where you’ll also find information about when we’ll update and forward your employee tax code. You just need to review the codes to make sure you’re happy with them before you start your first paycheck for that particular tax year.
While you are in the personnel records, it is also a good idea to check that your employees are included in the correct NI categories and to check any annual deferment certificates.
If you pay any employees car and van benefits, you will need to review and update these benefits for the new tax year.
Step 7: Directorship settings for the new tax year-
Make the necessary changes in directorship settings for the new tax year as per guidelines given on their official website.
Efficiency maintained with the use of Cloud Technology
Cloud-based accounting software, such as Xero, has revolutionized the accounting industry, especially for bookkeeping. The software goes with you wherever you go. So if ever there is a situation where you can’t go to the office, you can easily log in from anywhere with an internet connection. So that you never fall behind in your bookkeeping.
They are designed with a strong focus on user experience and therefore often come with clean and easy-to-follow interfaces. All your data is conveniently managed and accessible from the cloud. So, no more crooks scrambling around looking for receipts or invoices. The software will usually come with an automated bank feed which helps you in saving your time from manually downloading your statements. The ability for suppliers to send invoices (via email) directly into accounting software allows bookkeepers to easily retrieve invoices and attach them directly to transactions, making them much easier to track.
Best of all, cloud-based accounting software offers a range of third-party application integrations so you can tailor your bookkeeping process to your needs. There are a variety of tools for everything from tracking invoices to accounts receivable follow-up and cash flow management.
Conclusion
New technology and third-party integrated apps like Xero made catch-up bookkeeping process easy and time-saving. If we maintain our financial data of our business in the Xero software properly, then we can able to identify the profitability of the Business more efficiently.
