The trouble with trying to pick a "favourite" cloud-based bookkeeping service is that they all have unique things that make them stand out.
In Xero, at least for me, their standout feature is bank rules. Most services will automatically pull down bank transactions. Some of them will even "learn" how to categorize some of your transactions over time. Xero's implementation is my favourite.
Xero lets you create rules. These rules let you auto-categorize transactions as they come in based on several criteria. Instead of trying to explain it all by text, let me show you.
Here's a transaction that was downloaded from my PayPal account.
As you can see, Xero pulled down the date, the payee (PayPal), the description (Fee), and the amount ($9.22). PayPal fees are a common transaction in this account. Instead of having to manually categorize these each time, let's create a rule.
Click on the "Create rule" button at the top right of the transaction details. That will bring you to the Bank Rules screen. It's so powerful, I can't get you a screenshot that covers the full set of options. There are 7 different sections to each rule. Here are the first 4.
1.. The first part is the "IF" in a typical IF/THEN statement. This covers all the criteria your bank will provide that Xero can use to categorize the transaction. Some of these are going to be the same each time...others are specific to the individual transaction. I can't tell you how to handle each of yours, but I'll use this PayPal transaction as an example.
What you see above is what Xero filled in. We're going to change this a bit.
- Let's keep the Payee equals PayPal.
- We'll remove the Reference equals. That will be different each time.
- We can also keep the Description equals Fee.
What this means is that anytime a transaction from "PayPal" shows up with "Fee" in the description it will trigger the next parts of the rule.
2.. You've got 3 choices on how to set the payee.
* The payee from #1 will be used.
* You can select a payee or create a new one.
* You can opt to wait and fill it in during reconciliation.
3.. You can skip this step unless the transaction is for an asset purchase.
4.. This is where you set the category. In this example we're just going to put "Merchant Fees" in the Account field, and leave the rest as is.
5.. You can leave this setting as is, unless you want to fill in the reference during reconciliation.
6.. In this example we're going to keep this as PayPal. However, if you're setting up a rule for a transaction that happens across multiple accounts, you can change this to "all bank accounts".
7.. Finally, we need to give the rule a name. PayPal is fine, but since there might be more than 1 rule associated with PayPal, something like PayPal Fees might be more appropriate. Click Save.
And that's it. Here's what you'll see once you've saved it.
Now let's go back to the bank rec screen and see what it looks like.
See the difference? Now, instead of having to fill in each value, Xero just asks you if you want to apply the PayPal Fees rule. All you have to do for any future PayPal fee is click OK and it gets properly categorized.
Final tip:
The way Xero categorizes the info from the bank accounts can vary. For example, sometimes the "description" from a bank transaction gets placed in the "Description" field; other times it gets placed in "Reference". You can edit this in the bank import settings (maybe I'll cover this in another post), but there's a way to cover your bases here.
In #1, click on the dropdown menu that shows "Description". Instead, select "Any text field". Now the rule will still run even if the description was saved to the "Reference" field instead.
Happy reconciling!
