Xero in on Xero; Cash Coding

When transitioning a client’s books to the cloud, Xero’s cash coding feature is a critical efficiency tool for Accounting Advisors. The days of combing through old bank statements and manually coding transactions are a thing of the past thanks to cash coding. Instead, you can upload those statements into Xero and use the cash coding function to code thousands of lines of transactions in under an hour.

How does cash coding work in Xero?

Cash coding is based on rules you create for transactions from checking and credit card accounts. As you manually analyze the first few transactions, you tell Xero how to handle them based on the information in the statement. For example, you could create a rule that tells Xero to code all transactions with the word “Uber” as Transportation expenses. Now, Xero can find all the applicable transactions and code them appropriately. The more transactions you create rules for early on in your process, the faster you’ll see that long list of transactions to code begin to shrink. The best part? These rules are permanent; over time, you’re creating a rubric that will automate bank reconciliations.

It’s worth noting that cash coding is an Advisor-only feature. While it’s possible to allow your client access to the tool, we find that the greatest benefits come from using it ourselves. Most clients simply don’t have the accounting expertise to create the right rules and code transactions appropriately from the start. Cash coding demonstrates Xero’s commitment to the real human expertise in the accounting industry—it will help you work faster while capitalizing on your knowledge of the nuances of bookkeeping that come from being an experienced accountant. That being said, if you have a client who has made mistakes in coding transactions, you can simply unreconcile and use cash coding to help you fix the mistakes.

Our best practice is to use Cash coding when bringing a new client’s prior-year books into Xero. Once that client is up and running with cloud accounting, we take advantage of every automation feature available in the software and let the system do the work.

DOs of Cash Coding:

  • DO change the default number of transactions shown in order to code more transactions at the same time. The default is 100; by showing more, you can sort and reconcile more transactions at once.
  • DO drill down on blue headers to sort transactions in a useful way.
  • DO use cash coding along with bank rules.
  • DO set rules based on references as opposed to payees, and import bank information into the references field. Doing so will help streamline vendors. For example, if the client has two transactions at two different Starbucks stores, they may show up as Starbucks #4297 and Starbucks #4288. You want those store names to go into the references and use Starbucks as the payee.
  • DO check the tax rates in your Xero file and ensure they’re configured correctly. Every transaction will have an assigned tax, even if it’s no tax.
  • DO think through what will be the most useful way for your client to see information before you start coding. Setting up classes to go along with the cash coding may be helpful in some situations.
  • DO use the shortcut keys for faster coding!

DON'Ts of Cash Coding:

  • DON’T import transactions from the bank statement directly into the payee field. Import into the reference field instead, and pull standardized payee information from there.
  • DON’T give in to the temptation to let your client do this process because it seems like it’s automated. Automation is as powerful as the human behind it—you as the accountant should set up the proper rules so that your client’s books will be clean going forward.
  • DON’T use the cash coding feature for every reconciliation. It’s great for cleaning up a large amount of historical data, but your end goal should be to set up the rules that will automate this process going forward.

Xero helps accountants work more efficiently so you can spend your time on the mental heavy lifting. Cash coding is one of the many smart and intuitive features that we love to use. Learn more at Xero.com.

Xero Pro Tip: Don’t undervalue your work just because parts of it can be automated! When pricing a clean-up engagement, remember the value of the end product to your client. You’re handing over a clean set of books and setting them up for success on Xero going forward. Don’t undersell the value of that service in your pricing model.

Author Bio: Shelly Lingor, Director of Technology and Accounting at GCT Technology & Accounting. With over 20 years of experience assisting businesses with bookkeeping, setup, and training on accounting systems and development, Shelly is a huge asset to the GunnChamberlain team. As the Director of Technology Solutions, Shelly coordinates the implementation of improved business process optimization using the latest technology. Shelly serves as Chairperson on the Board of Directors for Crosswater Christian Academy and is also a member on the Xero Partner Advisory Council (XPAC). Shelly enjoys spending time with her family in Ponte Vedra, Florida.