Sweet Pink

Conducting Business Activities using

 Chapter 3

Set up the Organization

and Chart of Accounts
Creating new organisation
2. Fill in necessary details. The
1. Click drop-down arrow. business should be set to pay
taxes in Australia.

Click, + Add a new Click, Start trial

organisation
Creating new organization

1. Start by Clicking Next to continue the set up.

Creating new organization

1. Fill out the necessary

information.

• Display Name: Sweet Pink

• Legal / Trading Name: Sweet Pink
• Organization Type: Individual

Leave the other fields blank. Click Next to

continue.
Creating new organization

1. Leave the default Financial

Year End (30 June) as it is.

2. Under the GST Accounting

Method, choose Cash Basis
from the drop-down arrow.
GST Calculation is Quarterly
(Option 1).

3. Leave the other details at

default and click Next to
continue.
Creating new organization

*Skip the 3 next steps

which involve setting up
the Invoice Settings,
Invite Users, and
Currencies.
Creating new organization

• Leave the Chart of Accounts

at default. The changes for
this one will happen at the
later stages of the workbook.
Click Next to finalize the
setup.
Creating new organization

The bank account of the business will be

1. Click drop-down arrow.
added after setting up the real accounts.

The conversion date is set to May 2021. Click Next

to continue with the set up.
Creating new organization

1. Skip the set up for Account

Balances. Same with the chart of
accounts, opening balances will be
discussed at the later stages of the
workbook. Click Finish to end the
set-up stage.
Organization Settings
Click on the drop-down arrow next to the organization name in the top left-hand corner.

1. Click Settings. 2. Click Organization details.

Organization Settings
3. Some details have been filled; however, some changes need to be made. Fill in the Basic
Information section of the form as shown below and click Save.
Financial and Invoice Settings
Financial settings are accessed through Accounting > Advanced > Financial Settings.

1. Select Accounting.
2. Click Advanced.
Financial and Invoice Settings
3. Click on Financial Settings.

Accept all defaults except the GST Accounting Method. For Sweet
Pink, the Cash Basis method will be used. Some of the features of
this screen are explained on the next page.
Tax Rates
…

The tax rates that are available in Xero can be found in Accounting > Advanced > Tax
Rates. Sweet Pink is registered for GST and uses Advanced Tax Rates. The padlocks next to
these tax rates show that they cannot be deleted. The list shows how many accounts have
each tax code classification.
Reports
Xero has a suite of reports. Some can be accessed directly through the Accounting
menu. Others are accessed through Accounting > Reports.
The Chart of Accounts and Opening Balances
To access the chart of accounts, select Accounting > Advanced > Chart of accounts.
The start of the list appears as below.
Set up the bank account
1. Click on Accounting > Advanced > Chart of accounts.
2. Click Add Bank Account.

3. Type macq and a list of institutions beginning with macq

will appear.

4. Enter the bank details as shown below and click on

Continue.
Set up the bank account

• Since the company is just a

simulation of a business
operation, the bank account will
not be fully set up. This will not
affect the overall cycle of the
business.

1. Click I’ve got a form and I’ll do it

later to skip the process.
Set up the bank account

To provide an account code to the

bank account, go to Accounting >
Chart of accounts then click the
Cheque Account.

1. Put the code 100 in the account

code field and click Save.
Edit general ledger accounts
There are several changes that need to be made to accounts in the default list. As stated earlier, the code can be
changed, and/or the name and/or the tax rate. The first account to change is 620 Prepayments. The name of this
account will be changed to Prepaid Insurance.

1. Scroll down the list and select

account 620.

2. Make changes so the details

appear as on the right and
click Save.
Edit general ledger accounts
Repeat the process for the following fixed asset accounts. Click Save after each.

These accounts will now appear on the list like this.

The tax code, GST on Capital is used to record the

GST paid on the purchase of non-current assets.
While the rate is the same (10%), the treatment is
slightly different for reporting purposes.
OFFICE EQUIPMENT > FURNITURE AND EQUIPMENT
LESS ACC. DEP. ON OFFICE EQUIPMENT > LESS ACC. DEP. ON FURNITURE AND EQUIPMENT
COMPUTER EQUIPMENT > MOTOR VEHICLE
LESS ACC. DEP. ON COMPUTER EQUIPMENT > LESS ACC. DEP. ON MOTOR VEHICLE
Edit general ledger accounts
Make the following changes to some other accounts.

1. Edit the details of Account 900 -

Loan to Loan from ZBC Bank, as
well as its description.

2. Click Save.
Edit general ledger accounts
…

1. Change the name of Account

970 to Maxine Ma, Capital.

2. Click Save.
Edit general ledger accounts
…

1. Change the number of Account

880 to 975, the Account type of
Current Liability to Equity and
change the Name and
Description.

2. Click Save.
Edit general ledger accounts
…

1. Change the name of Account

200 to Sales - Dolls.

2. Click Save.
Edit general ledger accounts
Sweet Pink uses a periodic inventory system. When inventory is purchased, a Cost of Sales account is
used. At the end of the period, an adjustment will be made for inventory that has not been sold.

1. Change the name of Account

310 to Cost of Sales - Dolls.

2. Click Save.
Add new accounts

Separate revenue and cost

of sales accounts will now
be created for the other
inventory item, music
boxes. Click on Add
Account and enter the
details for each new
account as below.
The beginning of the chart of accounts will now look like this.
…
Add new accounts
The next step is to add an inventory account for each inventory type. Add the following accounts
to the chart of accounts. Check that all details are entered correctly and click Save.
Add new accounts
Add the following accounts to the chart of accounts. The Account Type for all is Current Asset.
Add new accounts (continued)
…
The Current Assets section of the chart of accounts will now look like this. If there are any errors,
just click on the account name and you will be able to edit the details.
Add new accounts
Add Purchase Returns accounts for music boxes and dolls and a Drawings account as
below. Be careful with the details, particularly the Account type.

1. Make sure the details are all

correct before you Save.
Enter opening balances
…

1. Go to Accounting > Advanced and select Conversion balances.

2. In the Conversion Balances screen, click on Conversion Date.
Note the Conversion Date is May 2021.
3. Click Save or Cancel to close this screen
4. The conversion date is the date on which the business converts to
Xero. It may be a new business (as in this case), or it may be after
the business has been operating for a while. The Conversion
Balances screen is used to record any account balances of the
business has on this date.
Enter opening balances
… 1. The balances in the accounts on this date are:

Dr Cheque Account $40,000

Cr Loan from ZBC Bank $10,000
Cr Maxine Ma, Capital $30,000

2. Click on Show all accounts so you can see the full list
of accounts.
3. When all have been entered, the Total Debits and
Total Credits should be 40,000.00.
4. Click on Remove zero balances and only those
accounts with balances will be seen.
5. When you are satisfied everything is correct,
click Save.
(A confirmation will appear at the top of the
screen.)

Return to the Dashboard. The Cheque Account

shows a balance of 40,000.00.
 Chapter 4

Record Sweet Pink's May

Transactions and
Produce Reports
Record Purchases of Inventory on Credit

1. Click on Business and select

Bills to pay.

2. In the next screen, click on

New Bill.
Record the bill as below.
1. In the From field, type Bells and Whistles. A message will appear with + New
Contact. Click on this and the supplier will be added to the Contact list.
2. When entering the Dates, you don't need to enter them in the format shown above.
You can use the format 1/5/21 and the program will convert it.
3. The default tax setting for purchases is Tax Inclusive.

4. The Item field is not

used.

5. Qty will always be 1

when the Item field is
not used.
Record the bill as below.
6. Since Sweet Pink is using the periodic inventory system, the
Inventory account is not used to record purchases. Instead, the
Account the business uses for inventory purchases is Cost of Sales.

7. The Tax Rate for this account is set in the chart of accounts.

8. Lines that are not required can be deleted by clicking on the X at the
right of the line. This has been done on the bill above.

9. The Total (top right of the bill) is not updated until the bill is
approved.
The next purchase transaction is:

1. Click Add another

bill and enter the
details as below. Add
the supplier as a new
contact. When you
are satisfied the
details are entered
correctly, click
Approve.
Add the following remaining purchase bills for May. Be
very
… careful when selecting the Cost of Sales account.
…
Check that your list is the same as what is below.

Note: The due date is the same for all, i.e. the last day of the month
after the bill. Red font means the bills are overdue for payment. This
is because your system date is later than 30 June 2021.
Record Credit Sales
To record credit sales, click on the Business menu and select Invoices. The following
screen will appear.

1. Click on New Invoice.

2. The layout for entry of credit sales is very similar to that
for bills.
3. The default invoice number is INV-0001, denoting the first
invoice entered. Since sales invoices are sequential, the
next invoice entered will have INV-0002 as its number.
4. Be careful that the correct Sales account is selected.
1. Note: The amounts
given are tax exclusive
as this is the default tax
setting for invoices.
GST of 10% will be
added when the invoice
details are entered.

2. Enter the details as

below. Add Robin
Hood as a new contact.
Record Credit Sales
Xero gives users the option to use "classic invoicing" or "new invoicing". New invoicing is
more suitable for businesses want a faster way to generate and send customized invoices.

To switch between classic invoicing and new 1. Type "Robin Hood'

invoicing, select the option at the bottom of into the To field and
the invoicing page. click Add 'Robin
Hood' as a new
contact.

2. Click Save.
Record Credit Sales
Fill out the rest of the invoice as below.

1. When you are satisfied

the details are entered
correctly, click the down
arrow next to Approve
& email and select
Approve & add
another.

2. Click Switch to classic

invoicing below the
form.
Enter the details as below. Add Mother Hubbard as a new contact. When you
are satisfied the details are entered correctly, click Approve.
Note: Add each new contact. For contacts that are already added, you just need to start typing the
name and select from the list. Be careful with dates.
To view the sales invoices recorded, go to Sales overview.
The total of invoices awaiting payment is $8,030.
Click on See all and the list of all sales invoices will appear
(all are awaiting payment). Click on the Number column
header to see the invoices in order as below.
Record Cash Payments
Record miscellaneous payments

1. Go to Accounting > Bank

accounts.

2. For this business there is only

one bank account. However,
this is not always the case, so
select the correct account by
clicking on it. In this case, it is
Cheque Account.

3. On the next screen, click

Manage Account, then select
Spend Money.
Record miscellaneous payments
The first cash payment is:

Enter the details of the transaction as below. Add Century Real Estate as a contact. Cheque numbers must be
entered manually.

1. When you are satisfied that all

details are correct, click Save
& add another.
Record miscellaneous payments
The next payment is:
Record miscellaneous payments
Record miscellaneous payments
Record miscellaneous payments
Record miscellaneous payments
1. After the last payment is
recorded, click Save and you
will be returned to the
Cheque Account screen.

2. Go to manage account and

select account transactions
to view a summary of
cheques written so far.

3. To view the transactions in

order, click on the Reference
column header. The list
appears as below.

4. This table also shows the

balance in the account after
each transaction. The final
balance after these
payments is $36,986.
Record Bill Payments

1. To record payment of a bill,

go to Business > Bills to pay,
and a list of all bills will
appear.

2. Click on Awaiting Payment.

(The list is the same as none
have been paid yet, but once
some bills have been paid, the
list of all bills will be longer
than those awaiting payment).
Record Bill Payments
The first bill paid is:

1. From the list, click Inv

859.

2. Record the payment at

the bottom of the bill.

3. Click Add Payment. The

list of unpaid bills
appears and Inv 859 is
no longer on it.
Spend Money Transactions
The next payment is:

1. This is not payment of a bill,

so it is recorded using
Accounting > Bank
Accounts > Spend Money
as per the earlier payments.
Alternatively, users can
access Spend Money by
clicking the + icon on the
top right and selecting
Spend Money, then
Cheque Account.
Record Various Payments
The remaining cash payments for May are below. Expense payments include GST.
Some tips:

❖ For bill payments, go to Business > Bills to pay. For other payments,
go to Accounting > Bank Accounts. Then click Manage Account >
Spend Money or + Spend Money.

❖ For bill payments, select Awaiting Payment to see just the bills that
are unpaid.

❖ All payments are from Cheque Account.

❖ For payments that are not for existing bills, be careful when selecting
the account to be debited.

❖ To view a summary of the payments, go to Accounting > Bank

Accounts Manage Accounts > Account Transactions. Click the
Date column header to see the payments in date order.
Record Various Payments
Record Various Payments
Record Various Payments
Record Various Payments
Record Various Payments
Record Various Payments
Record Various Payments
Record Various Payments
Summary

1. Check your screen against the

list above.

2. The balance in the Cheque

account after these payments
is $28,776. (to see the
balance, go to the Dashboard)
Record Cash Receipts
Record receipts from debtors
1. To record receipts from debtors, go to Business > Sales
overview and click on Awaiting Payment.

Click on the invoice number, or debtor's name.

The procedure to record receipts from debtors is the same as

recording payments to creditors. Enter the details as below.
All payments are to Cheque account.
Record Cash Receipts

❖ When you are satisfied the details are entered correctly, click Add
Payment.

❖ A message appears on the Invoices screen prompting you to send a

receipt.
Record Cash Receipts
The next receipt is:

1. In this case, the customer is

paying two invoices. For this, a
batch receipt can be created.

2. Select the invoices being paid

and click Deposit.
Record Cash Receipts
…
1. When you are satisfied the details
are entered correctly, click Deposit.

2. Click Send Receipt to view the

receipt that would be emailed to the
customer.
Record the remaining receipts from customers
Return to Business > Sales overview.
Record a miscellaneous receipt
The last receipt for May is:

The amount of this receipt is Tax Inclusive. The sale revenue is $1,055 x 10 ÷ 11 =
$1,050 and the GST is $1,050 × 10% = $105.
• Since this receipt is not related to a previous sale, it is treated as a miscellaneous receipt.

• To record a miscellaneous receipt, go to Accounting > Bank accounts > Manage Account > Receive Money

• Alternatively, click the + in the top right and select Receive money.
Record a miscellaneous receipt
…

1. Cash sales can be added as

a new contact.

2. When you are satisfied the

details are entered
correctly, click Save.
❖ The list of transactions
involving the bank will then
appear. Click on the Date
header to view them in order.

❖ The ending balance in the

account is $34,661.

Note: All transactions are

Unreconciled.
Record a Purchase Return and Allocate Credit
Some goods were returned to Neverland and a credit note was issued. Details of the
transaction are:

1. To record a credit note received, go to Business > Purchase overview, then:

2. Click New, and from the drop-down select Credit note.
3. Enter the details as shown below.

4. When you are satisfied

the details are entered
correctly, click Approve.

5. A new screen, Allocate

Credit Balance will then be
entered, and this message
will appear:
Allocate to an invoice
On this screen, you can allocate the credit to a specific invoice, in this case Invoice 907.

1. This is the only invoice outstanding

for Neverland, but if there is more
than one invoice outstanding, it is
important to allocate the credit to the
correct invoice.

2. When you enter the amount to credit,

press Tab.

3. When you are satisfied the details are entered correctly, click Allocate
Credit.

Purchase Returns - Music Boxes will reduce the cost of sales for the period.

The amount owing to Neverland on Inv 907 will also be reduced.

Correct A Data Entry Error
The entry to correct is

1. This transaction was posted incorrectly to the Furniture and

Equipment account.

2. It should have been posted to the Advertising account. The entry

can be corrected using Remove and redo, however, many
businesses prefer that errors are corrected using a separate
entry for audit purposes.

3. We are going to correct the error by using a journal entry to

transfer the amount (including GST) from account # 710
Furniture and Equipment to #400 Advertising.
Correct A Data Entry Error
…

1. To record a journal entry,

go to Accounting >
Reports and from the
Accounting group, select
Journal Report.
2. Click Add New Journal.
3. Enter the details of the
journal entry as below.
Ensure you enter the
correct Tax Rate for each
account.
4. When you are satisfied
the details are entered
correctly, click Post.
Record Adjusting Entries on 31 May
Adjustments required on May 31 are:

1. Click Accounting >

Reports and from the
Accounting group, select
Journal Report. Then
click Add New Journal.
2. Select New Journal and
enter the details as
shown at the left.
3. When you are satisfied
the details are entered
correctly, click Post.
Record Adjusting Entries on 31 May
Adjusting Entry for stationery (other supplies)

1. Select New Journal

and enter the details
as shown at the left.

2. When you are satisfied

the details are entered
correctly, click Post.
Prepare a Bank Reconciliation Statement
Import the bank statement.

1. Download the CV file from:

www.LNOnline.com.au/sweetpinkmay2021

2. Go to Accounting > Bank accounts.

3. Click manually import a statement.

4. Select the bank statement file using Browse and

click Import to upload it.
Prepare a Bank Reconciliation Statement
Set up fields.

This step involves ensuring that all fields between the

Xero record (transactions you entered and the fields
in the bank statement can be matched).

1. Complete all fields in the Assign to ... square

exactly as shown, then click Save.
2. A message will appear; "22 statement lines were
imported. 0 were duplicates." Click OK.
Prepare a Bank Reconciliation Statement
Match transactions appearing in both records.

The next screen shows the bank statement transactions on the left and
the Xero transactions on the right. Transactions that appear to be the
same in both records are highlighted in green.

To ensure these matches are correct, check the amounts and cheque
numbers. The dates may be different because of delays in cash being
banked and cheques being presented for payment by suppliers.

When you click OK, the transaction will disappear and you can move
on to the next transaction.
• The third transaction (GMO Insurance on
May 1) shows a message stating "2 other
possible matches found". This is because
the same amount appears in other
transactions. However, the cheque numbers
are the same so the transactions are a match
and you can click OK.
• Move carefully down the screen, checking for
matches and clicking OK as you go. Be very
careful as incorrect matches can create
reconciling issues which will have to be
corrected later.
• For deposits, the bank statement just shows
the word "Deposit". The Xero record shows
the receipt number. For these, check the
date and amount.
• When you have matched the transactions,
you will be left with one unmatched
transaction on the bank statement.
Update business record with unrecorded transactions

The $10 appearing on the bank statement is

for bank fees. This amount was deducted
directly from the Cheque Account by the
bank.

To record the bank fee, click the Create tab

and enter the transaction details.

When you are satisfied that all details are

correct, click OK.
Completion of Reconciliation of each Transaction

Since the bank fee was the only transaction not appearing in the
business (Xero) record and there are no undeposited funds or
unpresented cheques from the Xero record, when you have recorded
this transaction, the following message will appear.
Print the Bank Reconciliation Report.
…
1. To view and print the bank
reconciliation statement, go to
Accounting > Bank accounts
and click Manage Account.
Select Reconciliation Report.

2. Change the date and click

Update.

The Bank Reconciliation Report

will look like this. It is very
simple as there were no
unpresented cheques or
undeposited funds.

3. To print, just click Print.

Produce a Listing of Accounts
Receivable and Payable
To prepare the Accounts Receivable listing, go to Accounting > Aged Receivables.

1. Change the date (month and year only) and click

Update.
Produce a Listing of Accounts Receivable and Payable

2. The listing will appear showing the age category of each amount. Since this is a new business
and has been operating only 1 month, all amounts owing are Current (i.e. the current month).
The total amount owing is $3,300.

3. To print, just click Print.

Produce a Listing of Accounts Receivable
and Payable

1. To view the Accounts Payable listing, go to Accounting > Reports >

Aged Payables. Change the date (month only) and click Update.

2. The report will look like this. The total amount owed is $110. Click
Print to print the report.
Produce a Profit and Loss Statement and Balance Sheet
To prepare the profit and loss statement, go to Accounting > Reports > Profit and Loss New.

1. To make this report accessible directly from the Accounting menu, click
on the star. It will turn blue. The blue star means a link to the report will
appear on the Accounting menu.

2. Click Show Date Range and specify the period (1 May 2021 to 31 May
2021), then click Update.

3. There are no previous periods to compare this report with, so leave those
fields as "None".
…

The report will look like

this. Net profit is $3000.
1. To print the Balance Sheet, go to
Accounting > Reports > Balance
Sheet New.
2. Change the Balance Date to May
2021. Again, there are no previous
reports to compare this with, so
select Compare with None. Click
Update. The report below has been
exported to PDF.
3. The Balance Sheet should look like
this. Total equity is $31,500.
4. The layout can be customized using
Layout Options.
Produce GST Report
To prepare the GST Transactions report, go to Accounting > Reports > Account Transactions.

1. Specify the account as 820 - GST and the period

as 1 May 2021 to 31 May 2021 above.

2. Click on the Columns field and make the six

selections shown at the right side.

3. Click Update.
…

The PDF export of the report is

shown at the left side.
THANK YOU!