Part 5 - Making Purchases in Xero

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 can look at all the bills you are supposed to pay and that are overdue. In this section, we’re going to learn how to:

  • Create a new purchase (a new bill)
  • Approving, editing and cancelling bills
  • Creating a purchase order
  • Making payments on those bills that you have to pay & grouped/bulk or batch payments
  • Creating repeating bills (bills that happen regularly)
  • Creating credit notes for bills
  • Creating an expense claim

Create a new purchase (a new bill)

  1. Go to Accounts > Purchases and click “+ New”
  2. Enter details as required (see how to below) and then save. The contact name is the person/organisation who you’re paying the bill to. The details you need to enter should also be on the invoice that they send you. So put in their due date and a reference: e.g. cat food supplies. Note:
    • Scan a copy/take a photo of the bill and have it in jpg, pdf file in your computer. Then upload it. To do this, click on the icon that looks like a piece of paper on the right hand size of the reference field box. It’s important that you do this to keep proper records and also retain a copy in your computer’s storage drive. This is if you decide to move away from Xero, you have all your records.
    • If your bill is for inventory, then click the inventory item that applies (this is under the “item” dropdown in the line items.
    • If your bill is not for inventory but rather an expenses, e.g. snacks for the office, then don’t use the “item” dropdown, but use instead the description field to put in what you’ve purchased.
    • Fill in the quantity, unit price field and then select the account where you want your transaction/bill to be categorised as e.g. freight, rent etc…
    • If you want to add line items, then do so (e.g. if you buy postage stamps, books and other things all from the one supplier, put each of these items into a separate line but in the same bill).
    • You’ll also need to select the type of tax to apply to your line item amounts - tax exclusive, tax inclusive or no tax (see description of each below).

Tax Exclusive - This means that number that you put in for each of the line items (look at the picture below for what a line item is), does not include tax. So if you say that line item 1 should have 10% GST applied to it, it will calculate the GST after the subtotal.

Tax Inclusive - This means that the number you put in for each of the line items with include whatever tax rate is there. So your subtotal with be the amount that includes the tax within it. The “tax” amount is just showing how much tax was included in the subtotal amount.

No tax - this means no tax is applied at all.

Approving, editing and cancelling/deleting/voiding bills

  • It’s important when money goes out, it must first be approved. To approve an invoice, click the “Approve” button.
  • Editing a bill - before a bill is approved, it can be edited. Go to the bill and click “Edit” and make the necessary changes.
  • You can:
    • Cancel a bill before you’ve created it. Click on the “cancel” button while the bill screen is open.
    • If it’s in draft or awaiting approval, you can delete the bill by going into the purchases dashboard, clicking the tick box next to the bill you want to delete and then click on delete.
    • If a bill has already been approved or even paid, you’ll need to reverse payments and then go into the bill, click “Bill Options” and then click “Void”.

Creating a purchase order

Some organisation will use purchase orders. A purchase order is a document that says how much can be spent on something (so that employees don’t go buying things outside of budget). A purchase order also gives your suppliers authorisation to deliver goods/services. Think of it being like a reverse quote, you’re saying that you’ll purchase abc for $x. Then when they deliver it, you’ll change this purchase into a bill that you’ll pay. So here’s how to make a purchase order:

  1. Go to Accounts > Purchases. Click on the upside down arrow next to “+ New” and click on “Purchase Order”
  2. Fill out the details - it will be similar to filling out a new bill (go to create a bill above for more details).
  3. Then approve. Once ready to convert this purchase order to a bill, go into the purchase order, on the top right hand corner, you should see the “Options” or an icon that looks like a document. Click on that, and then “copy to” “bill”. That’ll create a bill for you from your purchase order.

Making payments on those bills that you have to pay

There are 3 ways to do this in Xero (and we’ll go through each of them):

  • Bank reconciliation.
  • Once-off payments via direct payment
  • Group payments.

Bank Reconciliation

  1. The easiest way to record a payment against a bill that you need to pay is to wait until your bank transaction lines come in and then reconcile the bank transaction with your bill. Bill paid.

Recording a Once-off payment via direct payment

  1. Go to Accounts > Purchases
  2. Click the bill you want to pay and fill out the amount paid field and date paid (you’ll need to scroll to the bottom for this). In the reference field, you can put things like “bank deposit” or “cheque 123” and then click “Add Payment”
  3. You’ll have to reconcile your payment with the bank at a later stage to complete this.

Group/bulk payments - these allow you to make heaps of payments quickly without haven’t to go into your internet banking and make payments one by one. Imagine if you had 200 bills to pay!!!

  1. Go to Accounts > Purchases
  2. Click on the tick box next to the bills that you want to pay and then click “Batch Payment” or “Make Payment” button.
  3. Click “OK” or “Batch Payment”.
  4. Enter the date when the payment will be made & select the account from which the payment will be made.
  5. Put in the bank account details for the person/organisation you want to pay in the Bank Account column.
  6. Click “Make Payments” and now you’ll need to export this batch file to your bank.
  7. Click “Export Batch File” - this will download a bank file to your computer.
  8. Log into your internet banking and upload your batch file that was exported and downloaded onto your computer.
  9. Authorise the payments from without your internet banking.
  10. Then the payments should go through.
  11. You’ll have to reconcile this later to make sure the bank account is reflecting the transactions.

Creating repeating bills (bills that happen regularly)

  1. Go to Accounts > Purchases, click on the upside down triangle next to the “+ New” button and select “Repeating Bill” option.
  2. Fill out the “Repeat this Transaction” which how frequently you’d like your bill to be created and fill out the details as shown.
  3. Save as Draft or Approve.
  4. Fill out the remainder of the bill (see how to create a bill above) and then save the bill. Your repeating blll has now been created.

Creating credit notes for bills

Sometimes you might need to offset or reduce bills or even have your bills refunded. In such a case, you’ll use credit notes. To create a credit note:

  1. Go to Accounts > Purchases, click on the upside down arrow beside the “+ New” button and click “Credit Note”
  2. Complete the details on the credit note screen and then “Save” or “Approve”.
  3. If the credit note is to be applied to the bill, put in the amount to allocate to credit.
  4. Click “Allocate Credit” to the bill. This will reduce the bill amount by the amount allocated to credit.

Creating an expense claim

An expense claim is when your employee pays for something for the business out of their own money and you need to pay them for it. E.g. if your employee goes to Bunnings to get tools for the business and paid for the tools with their own money (because it was convenient at the time), they’d raise an expense claim and you’d pay them. So, here’s how to create one:

  1. Take a photo or scan the receipt (and have it stored in jpg, png or pdf).
  2. Go to Accounts > Expense Claims and click “Add Receipt” and attach the copy of the receipt.
  3. Put in the relevant details for this expense claim and then save.
  4. You’ll need to check box the claim that you’ve submitted and click “Submit for Approval’ and”OK".
  5. The claim now needs to be approved by the employer and then paid to the employee.
  6. To authorise a claim, go to the bottom of the Expense Claims screen and click “Awaiting Authorisation”. Then check box the ones you wish to authorise and click “Authorise”
  7. To pay the expense claim, it’s similar to paying a bill. You can just reconcile it or you can go into the claim and fill in the payment details at the bottom.

Wow! You’re nearly finished now. When you’re ready, move on to Part 6 - Bank Reconciliations.

Next: Creating a Quote in Xero

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