Maria Sentic
It has been two years since I first comprehensively evaluated Xero versus QuickBooks Online. In this heated battle between these two accounting software titans, one winner is certain – us, the users.
I will tell you this – the features keep coming and both are continuously improving.
As a CPA and business consultant, I make it a priority to stay on top of changes in accounting technology. While Xero is my software of choice, I recently took on a client already using QuickBooks Online. So I decided to take advantage of the opportunity to compare the current bank reconciliation process and features in each platform.
Categorizing and Matching Transactions
Both Xero and QuickBooks Online have comparable methods of setting up bank feeds and importing transactions. The difference comes when it’s time to reconcile those transactions. Xero has two options for categorizing transactions – the Reconcile tab and Cash Coding.
Xero’s Reconcile tab splits the screen into two sides showing bank transactions from feeds and imports on the left side of the screen. On the right side of the screen, the user has four tabs to choose from: Match, Create, Transfer and Discuss. Match reconciles bank transactions with transactions you already have entered in Xero.
Create is for new transactions and those coded from bank rules and suggestions (more on those later). When the transaction is categorized or matched and ready to be reconciled, an “OK” button appears between the two sides. This user-friendly design is one of the hallmarks of Xero’s intuitive system.
Xero’s Cash Coding allows users to quickly sort, categorize and bulk reconcile transactions that would otherwise be coded using the “Create” tab. This feature can be activated or deactivated on a user-by-user basis in order to limit bulk-reconciling access (and the potential for errors).
As a cloud accountant working with tech-savvy clients, I enjoy taking advantage of online collaboration whenever possible.
QuickBooks Online’s only reconciliation screen is similar to Xero’s Cash Coding in that the columns can be filtered and transactions can be batch reconciled. However, you’re limited to the fields of information you can add when batch reconciling. Xero has the additional fields of description and reference, which many businesses use to record specific transaction information.
Unlike Xero, in QuickBooks Online matched entries can also be batch reconciled, which can be a time-saver for companies with large numbers of invoices and bills to match. I would like to see that ability in Xero as well.
Quick Reconciling with Auto-suggestions
Both QuickBooks Online and Xero get “smarter” over time with the suggested categories and matches they present while reconciling transactions. If Xero doesn’t have a recommendation, the payee, category and memo fields are left blank.
By contrast, QuickBooks Online does not leave a transaction without a suggestion – QuickBooks Online will recommend uncategorized income for any money received and uncategorized expense for money spent if no other category is recognized.
While this is easy to change, an inexperienced user can see these transactions as categorized and erroneously batch reconcile along with the other transactions. A recent client had over $15,000 in “uncategorized expenses,” accounting for over 20 percent of total spending, due to their previous accounting clerk doing just that.
In QuickBooks Online you have to take care not to accept transactions without verifying name and category – otherwise, you may spend a lot of time later needing to re-categorize those transactions.
Smarter Bank Rules
Xero was first to provide one of the greatest time saving features – bank rules. While QuickBooks Online has released that same feature there is one significant difference. Xero allows you to easily create rules from existing transactions by automatically importing the conditions.
In QuickBooks Online, you can only set bank rules manually. Not only is it faster to set up a rule in Xero, it’s also more likely the conditions will be set up correctly the first time.
QuickBooks Online does give an additional option to “automatically add to my books,” skipping a step in the reconciliation process. While this can be a time saver, rules can be misapplied due to a conditional word, for example, appearing in an unrelated transaction. I prefer to see and confirm the rule-coded transaction before saving it.
Built-in Client Collaboration
As a cloud accountant working with tech-savvy clients, I enjoy taking advantage of online collaboration whenever possible. Xero makes this easy with the “Discuss” tab. If I don’t have the information to reconcile a transaction, I make notes on whatever information I have and questions I need answered in the Discuss tab.
I can then alert my client that there are questions for them in Xero that they can answer. This eliminates the need for sending spreadsheets back and forth or emailing information into already cluttered Inboxes. With QuickBooks Online I have no similar mechanism for collaboration with my clients within the platform. Hello dreaded spreadsheets.
Both software offerings are improving, but my bet is that Xero’s attention to user-friendly details will continue to win over more business owners, accountants and bookkeepers.
Streamline Monthly Bank Recs
I have a confession to make: I’ve never used desktop accounting software. As a true Millennial accountant, my knowledge of accounting software starts in the cloud. So for me, Xero’s method of automatically reconciling bank accounts makes sense.
With Xero you skip the end of month bank rec – welcome to the daily reconciliation. When you reconcile a transaction on the reconcile screen it is automatically linked to the transaction on the bank statement.
If you’re going through that process regularly, be it daily or weekly, at the end of the month, there’s no extra bank reconciliation process required. If you want to see and store the monthly bank reconciliation, you can access and then publish the Reconciliation Report.
QuickBooks Online sticks to the desktop method of the manual monthly bank reconciliation. You must Reconcile the bank accounts using the feature under Accountant Tools. Once you’ve done that the bank reconciliation report will be saved.
If you’ve been reconciling your bank transactions on a regular basis and reviewing the balances, doing this manual reconciliation should only take a moment. But if you’re running an accounting firm with tens or hundreds of clients, taking this additional step of completing the monthly bank reconciliation can significantly add up in time.
Correct Misclassified Transactions
Oh, Find and Recode. How I longed for you so many years. When Xero introduced Find and Recode, the Xero advisors of the world wept a collective tear of joy. QuickBooks Online had the feature called Reclassify Transactions for years, and it was one of the biggest benefits of using one software over another, but not anymore and here’s how they compare:
QuickBooks Online’s Reclassify Transactions screen only allows for four filters: date range, accrual or cash, income statement or balance sheet account, and name. Then you can reclassify either the account or class, but not both at the same time. This has worked well for me in the past, and for most situations it would probably suffice.
However, Xero took QuickBooks Online’s Reclassify and improved it by adding more conditions and options. The users waited a long time, so Xero made it worth the wait. Xero allows you to filter between nine conditions, including “Entered by,” which allows you to search by user. I’ve used this condition to filter for transactions incorrectly entered by a new employee. Much easier than recoding one by one.
Xero allows you to recode 4 fields – contact, account, tax rate and tracking – and all at the same time. Another great feature that CPAs should love is the ability to recode either the source transaction or via a manual journal. Perfect for end of year work.
Lastly, Xero saves a history of all recoded transactions. You can click Summary to see details on what was recoded. You can even run the same search again, which I’ve used to quickly recode similar batches of transactions without rerunning the conditions from scratch.
Look and Feel
Finally, in this day in age, you cannot overlook the importance of design. Xero’s tagline isn’t “Beautiful Accounting Software” for nothing. And it isn’t just for show. The attention to user interface and experience design makes Xero more intuitive for those new to accounting.
Let’s face it – many small business bookkeepers, AR and AP clerks don’t have an accounting background. As a CPA and business consultant, I frequently recommend Xero because it is user-friendly for in-house staff. The side-by-side approach of the Reconcile screen makes it easy for non-accountants to understand and correctly match, categorize, and reconcile transactions. The ability to create rules from an existing transaction reduces the likelihood of rule errors.
Finally, the Find and Recode feature makes it easy for me to correct any potential mistakes.
While this is not a comprehensive list of all the features and characteristics of Xero and QuickBooks Online, it is an accurate comparison of the features I find most useful as a daily user of both systems. Both software offerings are improving, but my bet is that Xero’s attention to user-friendly details will continue to win over more business owners, accountants and bookkeepers.
Maria Sentic, a CPA and business consultant, is the founder of AccountingLeap.