When integrating with Xero, PracSuite will upload a payment total for each day per payment method. This process is designed for easy bank reconciliation.
As an integration focused on uploading payments received, this is best suited to businesses operating on a cash basis; however, there are ways to make this work for businesses using an accrual accounting method. This article details a workflow for using the PracSuite Xero integration for accrual accounting.
Please note that Smartsoft cannot offer specific accounting advice; this information is only provided as a general guide. You may need to consult your accountant or bookkeeper to adjust this process to your needs.
Why does accrual accounting need a separate process?
Our integration uploads based on payments received and does not upload all revenue billed in a period. This process uses Xero journal entries to add the outstanding revenue amounts into Xero and includes a process to re-upload the GST amounts based on an accrual accounting system.
How to setup Xero integration for accrual businesses:
Whether you operate on a cash or accrual system, the basic setup of your Xero organisation and integration within PracSuite stays the same. Please follow the article below for information on the general setup of PracSuite for Xero integration.
An accountant or bookkeeper should guide your exact setup of Xero accounts.
Important: To complete this workflow, you need to be an 'Advisor' level user in Xero, which can be configured by going to "My Xero" from the menu, then clicking into the 'Manage Users' section.
The Workflow:
Once you have set up your Xero organisation and integrated with PracSuite, below are the steps for managing your accrual business for each upload period. Due to the number of steps involved, we recommend that this process be done at the end of each month.
1) Syncing Payments to Xero
The first step is to upload your received payments into PracSuite, following the same process as businesses running on a cash basis. Assuming you have configured your integration settings following the guide above, this is done using the Sync Now button within your PracSuite 'Xero Organisation'.
In this example, we are uploading for June 2023.
To simplify this example, our breakdown of payments for the month of June is as follows:
10 x $100 cash
Total = $1000
It should be noted that GST is added to Xero whenever a payment (in PracSuite) is allocated to a GST-applicable item. For this example, half of the total payments ($500) have been allocated to GST-applicable items.
2) How to find the Accounts Receivable amount to be added
Our next goal is to determine the accounts receivable amount to be added to Xero for this month.
a) In PracSuite, run an Account Balance report from Reports > Billing > Account Balance.
In this example, we have a total of $2687.00 currently outstanding.
Note: The account balance report is based on amounts outstanding at the current date and time and cannot be generated retrospectively.
b) In Xero, go to the Accounting menu and view your Balance Sheet.
Note down your current Accounts Receivable balance in Xero, which must be deducted from the total owing in PracSuite.
e.g.
PracSuite reported a current owing amount of $2687.00
The balance sheet in Xero shows that $2000 of this has already been included.
You need to deduct the previous balance in Xero to get the remainder of $687.00, which represents the total owing balance being added for this month.
3) Creating a Manual journal in Xero to include Accounts Receivable
We now need to create a Manual journal entry in Xero, adjusting the accounts receivable to match PracSuite. In our example, the account balance to be added is $687.00.
a) In Xero, go to the Accounting menu and select Manual journals.
b) Click New Journal, and create entries to adjust the Accounts Receivable on the balance sheet to match PracSuite.
Success! Your balance sheet is now including the accounts receivable from PracSuite.
3) Adjusting Xero to remove GST
When syncing to Xero, transactions were created with GST included - but this was GST from a cash basis. To resolve this, we first need to remove the GST from the transactions we've already uploaded, which we will do using the 'Find and Recode' feature within Xero.
a) Login to your Xero account, and select Find and recode from the Accounting menu.
b) Click Find and recode, then Add a condition with the following conditions:
This will find all the transactions in this date range that have a GST component:
c) Select all transactions and click Recode.
d) Change the Tax Rate to GST Free Income, then click Review.
d) Click Confirm.
Success! These transactions have now been made GST Free.
5) Re-adding GST into Xero based on the Accrual system
The last step in this process is to re-add your GST into Xero, but this time based on the accrued GST value.
a) In PracSuite, go to Reports > Billing > GST Reconciliation.
b) Enter the correct Date Range, then select 'Accrual' as the Accounting Method.
c) Click Generate Report, and note the total in the amount column.
This represents the total amount of GST applicable items billed in the date range.
d) In Xero, go to the Accounting menu and click Manual journals.
The total GST income can then be added as below:
You have now re-added your GST balance to PracSuite under the accrual system. When viewing your Balance Sheet in Xero you should now have:
- A GST total matching the GST Reconciliation (Accrual) report in PracSuite.
- A Total Equity matching the total received plus the total owing.
Success! You have completed the accrual workflow using the Xero integration in PracSuite.