Xero: Account Categories (Chart of Accounts)

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When you are reconciling your bank account on Xero you will be attaching a category to all of your income and expenditure.

Sometimes it will be obvious what category the transaction should be assigned to, sometimes it will be less clear. The first thing to do would be to ask your accountant to suggest whether any of the currently existing categories are suitable.

Xero is set up for generic businesses, so it is possible that your business wants to classify income or expenditure in more detail than is currently available. To add a new category, you will need to add one to your Chart of Accounts.

A Chart of Accounts is literally just a list of account codes that are set up for your business. On Xero this list can be viewed by going to Accounting and then selecting Chart of Accounts from the Advanced menu option.

Before setting up a new account, it will be best to double check that none of the currently existing accounts is suitable. If you have two very similar accounts it is possible that you will categorise some expenditure as one and some as the other when you are not concerned about splitting them out in detail. This is best avoided if possible so reviewing what accounts are currently available is the first step.

If there is no category that suits your expenditure, what you will want to do is find something similar to see whereabouts in the Chart of Accounts it sits. For example, if you want to add a category for paying for staff accommodation when they are away on trips, you might look to see where travel costs are coded. The default travel codes are 493 for Travel – National and 494 for Travel – International and they are both classed as Overheads. You might therefore pick code 495 for Accommodation and realise you should class it as an overhead.

To add a new code, scroll to the top and select Add Account. You will then be able to add Overheads at the account type, 495 for the Code, Accommodation for the Name and if you want you can add a short description of what the account should be used for. Finally you can select the default Tax setting if you are VAT registered and hit save. The account should now be available to use when you are doing your bank reconciliation.

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