Process cheques or cash before you've banked them

Here's how to process invoice or bill payments before you've banked them.

Sales invoice or bill payments

If the payment you've made or received relates to an invoice or bill that has already been entered in Xero, you can do one of the following:

Apply a payment to the sales invoice or bill

The payment will remain unreconciled until your bank processes the payment and the bank statement line is imported. You'll then be able to reconcile the payment.

Record the payments in a separate account

The payments will remain in this account until they have been processed by your bank. You can do this as follows:

  1. Create an asset type account in your chart of accounts called Undeposited Funds. You will need to select the Enable payments to this account option.
  2. Record the payment on the sales invoice or bill, showing it as being paid to or from the Undeposited Funds account. This will move the sales invoice or bill to the paid tab and record the payment in the Undeposited Funds account.
  3. Once the bank statement line is imported, create a spend or receive money transaction and code it to the Undeposited Funds account. This will reverse the initial payment to or from this account and record the payment in the bank account.

Cash sales or purchases

If you have received or made a cash payment (ie not an invoice or bill payment) enter a receive money or enter a spend money transaction at the time you pay or receive the money. As with invoices or bills, the transaction will sit as unreconciled in your bank account until it goes through your online bank account at which time you can reconcile it to this transaction.

These scenarios are often referred to as 'undeposited funds' or 'cash on hand'.