When you do your taxes, the words “tax deduction”, “tax exemption” and “taxable income” will often come up. What are the meanings of these words? When you look in the dictionary, they’re definitions are even more confusion. The thing is that these words should be understood together, not in isolation. In this blog post, these words will be explained in a way that’s easy to understand and I’ll show you how they’re all linked together.

Accounting is about recording things and how we record it. What’s accrual accounting then? It’s “how” you record – essentially it’s a way of recording or recognising sales or payments when things happen, not necessarily when things are paid in cash. Find out more…

Have you heard the phrase “just put it on my account?” Also, what’s a “balance”? People use these terms when they might not have the money to pay someone on the spot. But what exactly is an account and what’s an account balance? And how does it work? Find out…

According to the Merriam Webster dictionary, accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results. Here’s how to really understand it through examples.

Double entry bookkeeping is something that confuses a lot of people. Essentially, what it means is that when you make a sale, record a bill or record any other type of transaction in your business, your accounting system will record entries in both the right side and left side of an account (an account is like a storage compartment with two sides). Read on to learn more…

Debits and credits are often a confusing concept because the words seem to be really technical but in reality, their definition or meaning is really quite simple. They’re just weird names to say that this is the left side of an account and this is the right side of an account. Read on to learn more…

The dictionary definition of accounting profit is that it’s the amount remaining after you take away your expenses from your income/revenue (the money you generally bring it). But there’s more to this… that is, what qualifies as revenue item and what qualifies as expense.

In easy to understand language and in a simple explanation, we answer the question, “what is accounting?” Read on to find out…

Although the accounting equation is simple - Assets – Liability = Equity, many people don’t know how it applies in real life examples and what equity event means. Check out this blog post to finally understand what the accounting equation is, how to rearrange it and see how it applies in real life examples.

A chart of accounts is just accounting jargon and it’s pretty much the accounting world’s version of a book’s table of contents. Its definition or meaning is quite simple – in essence, it’s a list of accounts. Easy right? This post will help you understand how it is structured, why the length and names of your accounts is important and how the list changes with your business.

Did you know that when money goes out of a bank account (through expenditure), it’s not always for an expense? This post will help you understand once and for all what an expense is in accounting and make its meaning easy to understand. Remember, expense does not always = money.

The accounting definition of depreciation is often one that confuses a lot of people. In this post, the meaning of depreciation will be explained to you in simple language using a simple example – that of a banana.

Accounts receivable is a basic accounting word but its definition is often explained in a confusing way. In this post, you’ll have accounts receivable explained in a way where you can finally understand its meaning – both the big picture and in detail.

A general ledger is the backbone of an accounting system – but the dictionary definition and meaning is a bit complicated and confusing. In simple terms – it’s an organization system on steroids. Just like a wardrobe that’s organized in such a way where you can find anything.

Equity is one of those scientific sounding words that you’ll likely hear about when you borrow to buy a house, seek investment or bring in a partner for a business. But it’s not hard at all to understand what equity means. In a nutshell, it pretty much means the dollar or percentage amount of ‘real’ ownership you have in something.

Does your face go blank when your accountant or banker asks you about your liabilities? “Liabilities” is a word that is a basic part of running a business and for life in general (did you know your credit card debt was a liability?) so knowing what it means helps you become more financially savvy and hopefully, less stressed out. Learn what it means (in plain and simple English)

What’s accounts payable? The meaning of accounts payable is that it is an account that holds all the amounts that you need to pay people. Think of it as a compartment that holds all your IOUs.

Don’t know what the meaning of asset is when it’s used in accounting? I’m going to explain to you the definition of what an asset is in simple and plain English.

Download the following image for use in Unit 10 Activity 2, Part 1. You can download it by right-clicking on it and saving it somewhere.

Unit 1

Download the case study for the fictitious company — Cafe Catering Pty Ltd here:

The below are files that you will need to complete Unit 23 Activity of the Xero for Day-to-Day Business bookkeeping:

Activity 1

The below are files that you will need to complete Unit 21 Activity 1 of the Xero for Day-to-Day Business bookkeeping:

Vendor collated spreadsheet:

The below are files that you will need to complete Unit 20 Activities 1 & 2 of the Xero for Day-to-Day Business bookkeeping:

Activity 1

Here are the following files for their respective bank accounts:

a. WBC - Cafe
wbc-cafe-bank-account-import.csv (267

To save these images onto your computer or cloud drive, right click on the image and then click “Save as” and select an appropriate location to save the image.

Use the first image (the coffee cup and spoon) for the cafe arm and the second image (the hand holding the dish) for the catering arm of the business.

Here’s where you can download the receipts to complete Activity 1 of Unit 8 - Expense claims in Xero for Day-to-Day Business.

To save these images onto your computer or cloud drive, right click on

Here’s where you can download the purchase invoice images to complete Activity 2 - Purchases of the Xero for Day-to-Day Business.

To save these images onto your computer or cloud drive, right click on

Depreciation recapture happens when you sell something and the gain or a portion of the gain is classified as ‘ordinary income’ (instead of capital gain which has more favorable tax rates).

It in this post, I’ll put in a table, the types of depreciation methods that are acceptable to the IRS in calculating depreciation. Depreciation is the reduction in the value of something you purchase and keep for use. For example, if you purchase a car for $25,000, normally you can’t

MACRS is a depreciation system that’s used to calculate depreciation for most property that was placed in service in from 1987 onwards. Placed in service essentially means put in use.

Leave loading is an amount paid in addition to leave payment. In Australia, annual leave may attract 17.5% in loading (the amount in addition to leave payment when you take it). This means if you get annual leave of $100, you’ll also get an additional $17.5 on top, so

In this category, I’ll be putting up any downloads and additional notes for students of current short courses that I run.

Here are the instructions for the activity:

1. Create two bank accounts in Xero. Name one of them: “Everyday Transaction” and name the other “Overdraft”. Use default settings

Here are images that can be used in Intro to Xero Class activity to upload a a logo.

To download on your computer, right click on the image and “Save As” on

Here’s a sample CSV file containing sample bank transactions to use with an activity in Xero run for my Xero classes.

EDIT: The below is an old file now as the new file is now

Sometimes when people quote or invoice, they don’t want to show detailed line items but still want to record the data.

A way to do this is to use custom docx. invoice templates that create an

Here’s an excel template file that you can fill in if you have bank transactions that need importing into SageOne.

excel-template-for-sageone-bank-import.xlsx

Sometimes when you sell something to someone online you might charge them $20. But when the money hits your bank account, it might be $18 - or an amount less than the invoice because bank or merchant fees (e.g. $18 because of a $2 merchant fee e.g. from paypal or stripe) have been

When you put in your purchases as supplier invoices, you may look for documents to ‘prove’ your purchase.

Examples of these documents can be:

Let’s use superannuation as an example because you can have superannuation expense and superannuation liability.

What’s the difference?

This post follows from Part 5 - Employee Portal for Timesheet and Leave.

This is the final part of the payroll guide and in this guide we’ll go

This post follows from Part 4 - Processing Payroll in Xero and Generating Pay Slips.

In this post we’ll go through giving employees access to Xero payroll so

This post follows from Part 3 - Adding Employees.

To process pay and then provide your employee with a payslip, you’ll need to:

Now that you’ve set up your payroll system settings in Part 2 - Setting Up Your Payroll & Gathering Information.

It’s now time to set up your employees in the system. Setting up

This post follows from Part 1 - Introduction

To get started doing your payroll there are a few things you’ll need to organise.

Payroll is involved with everything to do with the payment of an organisation’s employees along with meeting obligations associated with payroll such as superannuation.

What are ratios and what are they used for?

Ratios are measurement mechanisms that allow you to quickly see how well specific parts of your business are performing. One very simple

This post is the final one for the Intermediate Guide to Using Xero Accounting and it follows from Part 7 - Reports in Xero

In this post, we’ll go through:

An Instalment Activity Statement is a form that businesses use to report to the ATO on PAYG tax withheld, PAYG instalments and Fringe Benefits tax.

If your business is in the UK, depending on your registration, your business may need to a VAT return.

To prepare a VAT Return in Xero, follow the steps below:

If you’re based in the US and use contractors, it’s likely that you’ll need to report the income you pay to them using a Form 1099. Fortunately, Xero makes it easy to prepare one of these forms.

This part follows on from Part 6 - Doing Your BAS in Xero.

You’ve learnt now to make transactions (that’s enter data) and check

If your business is in New Zealand, depending on your registration, your business may need to report to the Inland Revenue for their GST via the GST Revenue and Provisional Tax Return.

This post follows from Part 5 - Weekly and Monthly Routine Tasks.

The Business Activity Statement (BAS) is a form that businesses

The post follows from Part 4 - Managing Multiple Currencies

Often what happens after people have learnt how to create transactions

This post follows from Part 3 - Dealing with Fixed Assets.

This post will go through managing multiple currencies in Xero. This

This post follows from Part 2 - Managing Inventory and this post will go through:

• What are fixed assets

This part following from Part 1 - Introduction to Intermediate Guide to Using Xero

What’s inventory?

Now that you’re comfortable with setting up in Xero, creating transactions (invoicing and billing) all the way to reconciling your transactions with your bank in and out flows, it’s time to move on from the basics to learning how to use Xero to oversee the performance of a

This follows on from Part 5 - Purchases in Xero.

A bank reconciliation is just a fancy way to say ‘check if everything is in order’. What you’re doing in a bank reconciliation is checking

Inventory are things/materials that a business holds temporarily and then can be sold. For example, if you’re a computer shop, the computers that you have on hand is your inventory that will be sold to customers later on. You need to record the stuff that you have on hand

There are two ways in which you can customised your invoice in Xero:

• Standard Approach - you kept the layout of the standard invoice that Xero provides but change things up like different text, font

This part follows from Part 4 - Invoicing in Xero.

Xero has this neat dashboard for all your purchases and you can go to this purchases dashboard by going to Accounts > Purchases. Here you

You can create quotes in Xero. Quotes that things that usually tradies do, but it involves providing a potential customer with a price that a job would cost to do.

One of the things that Xero help you do is to keep track of the invoices you’ve sent to customers and which ones are awaiting payment and which are overdue.

To record cash payment against your sales invoice follow the steps below:

1. Go to Accounts > Sales > Click “Awaiting Payment” tab

Credit notes are things that happen if you want to change an invoice that you’ve issued. In Xero, however, you can edit/delete/void where appropriate. So you:

This part follows from Part 3 - Creating Contacts in Xero.

Invoicing in Xero is easy and can be easily automated with software if

The Spend Money and Receive Money options in Xero can be used to record cash transactions.

To create a Spend Money / Receive Money transaction in Xero:

The dashboard in Xero is the first screen you come to after you’ve set up Xero.

On your left side, it has your **bank accounts and total cash in and

Here’s how you can give people access to Xero in 5 Simple Steps:

1. Log into Xero, go to Settings > General Settings > Users
2. Click “Invite a User” and put in their details.

With Xero (and with a lot of other cloud accounting software providers) you can use Live Bank Feeds.

What are bank feeds? It just means that the debits and credits

This part follows from Part 2A - Setting Up Xero from Scratch and Part 2B - Converting to Xero.

Xero makes it easy for you to create a contact list. A contact list is

This follows from Part 1 - Beginner’s Guide to User Xero Accounting: Getting Started.

This section will be useful to you if your business is already running

A conversion date is the date that you start using a new accounting software.
A conversion balance is the amount for a particular account as at the conversion date.

You should customise your chart of accounts to be able to organise and show the financial information that you need. You can do this quite easily in Xero and here’s how.

Continuing the discussion from How does the Chart of Accounts Work & Why is it Important?:

What’s in a Chart of Accounts - here are a list of accounts commonly

This guide follows from Part 1 - Beginner’s Guide to Using Xero.

Follow these steps to now get started on Xero.

Starting out with a new accounting software is always challenging, however, with this guide, I’ll help you to set up Xero and introduce you to the basics so that you’ll be on your way to:

I’ve been using Xero for a while now and while I think that Xero is very easy on the eye and things work fine, there’s one thing that bothers me about it. The $50 per month fee. It works out to $600 a year and, that’s not a once off. It’s every year, or rather, month.

A business can have positive cash flow but isn’t profitable because cash and profit are different concepts. See Cash flow is not the same as profit – here’s why…(simple illustration)

Cash and profit are two different things in accounting.

Cash is the cash flow in and out of a business whereas, sales and expenses (in profit) can have non-cash transactions like depreciation,

You can pay yourself in many ways and depending on what type of structure you have for your business.

If you are a sole proprietor or sole trader, check out [How to pay

This category is for questions about accounting that relates to running a business. Things like transactions for employees, business structures, how to do certain transactions relating specifically to running a business.

The current Australian tax free threshold (2015-16 Financial Year) for Australian individual residents is $18,200. This means that if you taxable income (usually how much money you’ve made) is $18,200 or less, the tax rate is 0%. So you don’t have to pay any tax on any amounts up

The simple answer is this. In your accounting system, all you have to do is create a transaction that does this:

DEBITS the Drawings Account (the Drawings Account is an Equity Account)

The difference between a Type 1 fringe benefit and Type 2 fringe benefit is whether the amount is entitled to a GST credit. Type 1 fringe benefits are a GST taxable supply with an entitlement to a GST credit whereas with Type 2 fringe benefits, the provider of the benefit is

Here’s a free GST calculation worksheet spreadsheet with notes and explanation. For further information, refer to the ATO website.
It has the G1 - G20 GST codes that may assist you when preparing your BAS along with calculations that are built in.

If you plan on using petty cash in Xero, here’s a shortcut.

• Create a bank account in Xero called Petty Cash. The bank and account number would be called “Petty Cash”.
  

Direct payments, prepayments and overpayments are a form of money flow. They can be money flows into the business (money received) or money flows out of the business (money out). Here are the differences and also why they need to be reconciled:

Petty cash like another ‘cash account’ that is created so that a business can conveniently spend on items that they need. For example, buying stamps and the like.

Here’s a table of the debits and credit flows for an overpayment where someone has paid you too much (over and above what you invoiced them) for something. It’s good to see what the ins and outs are in the accounting system when something like this happens.

In Xero to create an overpayment (when you’ve paid too much or when someone’s paid you too much):

1. Make an overpayment – to do this go to: account > bank >

Here’s a table of the debits and credit flows for a prepayment in which you are receiving money for services/goods that you will deliver in the future. This table is good to see what happens in the back end of an accounting system. The example we’ll use is for a prepayment (revenue

A prepayment is when you put or receive money upfront for something you’re planning to receive or deliver later. Why have it? Well… businesses have prepayment as it provides them with security.

Before you read this, check out the posts What’s a prepayment and the types of prepayment and Debits and credits flows including GST that happen for a prepayment in the T-Accounts to get a more in depth understanding of how prepayments work on the whole.

Trusting someone to manage your money and to provide you with advice is important, so you don’t want to leave it to someone who is not properly qualified. You wouldn’t get your car serviced by someone who doesn’t have qualifications to fix up a car properly so why would you leave your

You can outsource your accounting quite cheaply ($7 an hour) to overseas companies or freelancers. But like everything, you have to check that the work is being done property and that your information is being kept secure.

Note: I’m on a package with Xero and I’ve used the installed version of MYOB.

If I were going to use an accounting software I’d use Xero. Here’s why:

Cloud accounting software is software that is hosted online. It means there’s no need to install it on your computer and you can access it online in an internet browser.

Interest is what you pay to borrow money.

So just say, I borrow $100 and in order to borrow this money, the bank will charge me 1% interest each year.

The easiest way to set up a budget is to use an excel spreadsheet, if you’re not familiar with excel, you could also use good ol’ pen and paper.

This category is for posts/topics about managing your money better and saving money.

A holding account is one in which you don’t want to allocate it to something definite but want to hold funds to track something.

For example, if I wanted to track how much I’d been paying on odesk for

Depreciation is a weird concept isn’t it?

It’s meant to decrease the value of something you own. Why? Well in most cases, when you own something, say a computer, over time:

Net Assets is used to show how much a business is worth at its most basic form and it’s calculated as:

ASSETS (current + non-current) < depreciation comes in here

Here’s the difference:

1) A sole proprietor is an individual that carries on a business. If things go wrong and his/her assets are on the line along with assets

Accounts payable is an account within an accounting system that records how much money you OWE other people or organisations.

For example, I buy 20 rabbits

Choosing the right accountant is stressful. Accountants are usually specialists within one area and if you choose the right accountant, they can assist you in better understanding your finances aswell as being a business coach. But how do you know if they’re any good? Here are some

Currently, it’s 30%.

There are other taxes a company may have to pay such as GST and FBT depending on their circumstances.

Cash flow is the flow of real money. It is when money comes in and when money comes out of your bank balance and/or wallet - not ‘invoice’ money but real hard cash money.

Accounting is a system to manage transactions.

I’d call it an uber system to organise money that you’re owed, money that you owe and the things that you own. I believe the outcome of

Hi there,

My name’s Vi and I’m a Chartered Accountant. Congratulations on taking the step to do the Chartered Accountants Program. It’s known in

I’m going to post up shortly a free excel invoice template that you can download and use for yourself.
This excel invoice template will allow you to save a pdf version of the invoice.

Here’s what I do to pay employees.

1. Generate a payslip by going to Payroll > Pay runs, Click “+ Add Pay Run” and choose your pay period e.g. Weekly Pay: Week ending 02

FBT’s a really complex area and even the simplest questions have convoluted responses. For example, if I’m keeping a log book and I’m using the car 90% of the time for business but I drive less than 10,000km a year, what do I do? Can’t I just claim the 90% of running

Ideally what you should do when you have more than 1 business is purchase an additional pack from Xero but there is a way to get around this, although it won’t be as clean as you’d like.

If you’re selling online and using stripe or paypal to collect payments, at one point you’re going to want these transactions to appear into Xero.

Accrual vs Cash is the backbone of modern accounting.

Quite simple, accrual is when you recognise a transaction when it occurs independent of when the cash flows.

The chart of accounts is like an index.

In simpler terms, imagine you have a closet with different rows (your chart of accounts). One row you’ll put your jumpers in, the other row

Here’s an activity that you can do and that probably covers the some of things you need to do to maintain your records.

1. Add Chart of Account Items

This category is for posts relating to investing in property. Things like depreciation, the cash flow return on property etc….

Be careful with using Xero in that you’re not only ‘creating’ a transaction each time. So for example, if you make a payment at for say, two wooden blocks for $25 in total for work expenses, it is ideal to do the following:

This is where spreadsheet files (xlsx, csv etc..) or links to them can be uploaded and downloaded by community members.

The tax office says that:

When completing your tax return, you’re entitled to claim deductions for some expenses that are directly related to earning your income.

Taxable income is the money you or your organisation makes that is ok to be taxed. For example, if you work as an employee selling ice cream , the money your boss pays you for doing your job

This category is for chat about accounting concepts. For example, what’s an expense, why are there debits and credits. If it’s a tax related question, put it in the tax category.

[Replace this first paragraph with a short description of your new category. This guidance will appear in the category selection area, so try to keep it below 200 characters. Until you edit this text or create topics, this category won’t appear on the categories page.]

[Replace this first paragraph with a short description of your new category. This guidance will appear in the category selection area, so try to keep it below 200 characters. Until you edit this text or create topics, this category won’t appear on the categories page.]

This topic will chat about using Xero. Xero is cloud accounting software. I use it to manage my accounts.

Here’s a list of doing the basics: