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:

• Create a purchase invoice and attach the electronic copy/version of it.
• Then reconcile.

When your reconcile a transaction that’s been create in this way. It’s likely to look like this:

The other thing is a cash based transaction. Sometimes, instead of creating a purchase invoice, people may just ‘create’ a transaction directly from the reconcile area.

It looks a little like this.

As I understand, what happens when you do this, is that it credits the cash account for $25 and then debits the work expenses account.

In English, this means, it takes $25 away from your cash balance and then puts this in your expenses, so your report will see a $25 expense.

What it does though, is that it by-passes the accounts payable account, so that when you go to Accounts > Purchases, this $25 never appears, but it will appear in your reports. Sometimes this ‘create’ transaction is useful for things such as bank fees (as shown in the picture), but for the majority of things, especially stock purchases, I would create a purchase invoice rather than using the ‘create’ transactions.