Customising your Xero codes and Chart of Accounts

As any business using Xero online accounting will tell you, it’s a brilliant piece of software for getting real-time control over your finances, key numbers and reporting. But to realise the true benefit of this functionality, you’ve got to get your hands dirty and start tailoring the Chart of Accounts and accounting codes in Xero.

So, what exactly is a ‘Chart of Accounts’? And how can you amend, update and customise the Xero codes it contains to create a truly bespoke way to manage your finances?

What’s my Chart of Accounts?

At the centre of your Xero system is something accountants refer to as the ‘Chart of Accounts’ – a full list of all the codes used within your accounts.

The Chart of Accounts uses numerical codes to track every incoming and outgoing transaction you carry out in the business. For example, ‘Sales’ are coded against the 200 code, ‘General Expenses’ are logged under the 429 code and ‘Printing & Stationery’ is assigned to the 461 code. It’s a way to codify your costs and income so you can make more sense of them.

Xero’s getting smarter and smarter about automating the choice of codes when doing your bookkeeping, but deciding how to break down your transactions, what codes to use and how you’ll then customise your Chart of Accounts is something that requires a human touch.

Why should I customise my Xero codes?

The Chart of Accounts is the underlying heart of Xero, and by customising your account codes to the precise needs of your business you can record and track each element of your finances.

In essence, this coding process allows you to tag and group every single cost or revenue item in the business. By putting each transaction into its own unique ‘pot’, you can then quickly and easily tally up the contents of each pot and see how much money’s been made, or spent.

The standard Chart of Accounts in Xero will get you off to a good start, but tailoring the codes to track the key numbers in your specific business model gives you a far more detailed (and more tailored) overview of the company’s finances.

How do I amend my Xero codes?

Amending your Xero codes so they’re more suited to the needs of the business makes a lot of sense, and adds real value to your Xero reporting.

It could be something as simple as changing the name of an existing code to the preferred term you use in your business, or it could be that you want to create new sales codes for each individual branch in your company, or every sales person in the team.

If you’re happy to get a little ‘hands on’ with the internal workings of Xero, it’s possible to amend or create these codes yourself.

Here’s a quick overview of the main ways to amend your codes:

1. Getting started – log into your Xero account and go to Settings > Chart of Accounts. Here you’ll see a list of all your account codes – you’ll notice that the codes are generally grouped together by ‘Type’ and it is always helpful to keep it this way.
2. To change the code name – simply click on the name of the code you’d like to change and amend the ‘Name’ field. It’s best not to change the ‘Account Type’ or ‘Code’ fields unless you really need to.
3. To add a new code – select ‘Add account’ at the top of the page and populate the ‘Account Type’, ‘Code’, ‘Name’ and ‘Tax’ fields. ‘Description’ isn’t mandatory but feel free to add this if you like (it won’t appear in any reports but can be a helpful reminder).
4. Account type – these are grouped by Assets, Liabilities, Revenue, Expenses and Equity. If you’re not sure which one to use, it’s a good idea to check with your accountant first before making any changes.
5. Code – this will be the fixed code that will be used each time, try to keep the codes in line with other ‘Account Types’. For example, all 4000 codes will relate to Revenue.
6. Name – this will be the name that appears in your reports, so it’s important to choose a term that everyone in the business will understand.
7. Tax – generally the relevant tax rate will be 20% (VAT on Income/Expenses), but if you’re not sure then talk to your adviser to check the correct rate. We have a blog on VAT tax codes tax codes for expenses that you can read here.

Tracking the numbers that matter

With your Xero codes customised and tailored to your exact needs, you have a powerful set of tools in Xero for tracking performance over time and highlighting the key financial areas where action or improvements may be needed.

Your profit & loss (P&L) and balance sheet reports will show you each account code as a separate breakdown in your reporting, with the option to compare against previous months, periods or years. And you can even customise your main Xero Dashboard to show the important numbers, metrics and KPIs that you’ve set up as new codes.

By making it easy to track the numbers that matter, you get an instant, real-time overview of the health of the business. And that’s a huge advantage when it comes to managing your finances, planning your future months’ activity and making important business decisions.

Need a hand with your Xero codes?

If you’d like any help with customising your Chart of Accounts and Xero codes, we’re always at the end of the phone line.

Talk to us about new ways to customise your Xero set-up with enhanced coding and tracking. We’ll help you to improve your scorekeeping and performance management, and will provide you with the important numbers you need for managing the business.

Who are FD Works?

The FD Works team of accountants are here to help you to get control of your financial destiny and achieve your key goals. From our Bristol and Bath offices our team help startups, scaleups and established firms throughout the South West and across the UK embrace their numbers and succeed.