Components of an account in your chart of accounts

Every account in your chart of accounts has several components. You can edit some components, and use components to learn more about the account.


Image showing account code.

Each account has an account code. A code can be up to 10 characters. The code is used to group similar or frequently used accounts together in your chart of accounts. There is no one 'right' code for each account.

If you are used to a different coding system, or would prefer to create your own, you can edit any of the accounts and change the code.

Your accountant or bookkeeper may have a preferred set of codes that they would like you to use.

When you change a code in your Chart of Accounts, Xero moves the old data under the new code for all new reports. Published reports will not reflect this change in code.

Name and description

Image showing account name and description.

Every account in Xero must have a name. The name can be up to 150 characters.

The account description is optional, except for bank accounts (where you mustn't use it). Use letters, numbers or symbols for the description, up to 1000 characters. Use symbols within the description, not at the start.

You can edit the account name and description.


Image showing account type.

Each account has a type. Xero uses the account type to determine where the account appears in your financial reports. Xero also uses some account types for specific purposes. For example, if you purchase an item and code it to an account with the Fixed Assets account type, Xero will add the item to the fixed asset register as a draft fixed asset.

Changing the account type may move the account to a different section on reports. This won't affect reports already published.

Choose the account type when you add a new account. You can change the account type at any time by editing the account.

It isn't possible to change an account type to inventory. This is to ensure that your inventory asset account will match the inventory reports, when used with tracked inventory. You need to set up a new account with the type inventory.

Talk to your accountant or bookkeeper before changing the account type of a system account.

Add new account pop-up

Account types in Xero are arranged in 5 categories:


  • Bank
  • Current Asset
  • Fixed Asset
  • Inventory
  • Non-current Asset
  • Prepayment


  • Current Liability
  • Liability
  • Non-current Liability

Xero treats Liability and Non-current Liability identically. You can choose which type to allocate to your account.


  • Depreciation
  • Direct Costs
  • Expense
  • Overhead

Xero treats Expense and Overhead identically. You can choose which type to allocate to your account.


  • Equity


  • Other Income
  • Revenue
  • Sales

Xero treats Revenue and Sales identically. You can choose which type to allocate to your account.

Tax rate

Image showing default tax rate on account.

Each account has a default tax rate. The tax rate determines how Xero treats the transactions for VAT purposes.

To account for VAT requirements for your organisation, the following tax rates are available in Xero:

  • 20% (VAT on Expenses)
  • 20% (VAT on Income)
  • 5% (VAT on Expenses)
  • 5% (VAT on Income)
  • EC Acquisitions (20%)
  • EC Acquisitions (Zero Rated)
  • Exempt Expenses
  • Exempt Income
  • No VAT
  • Reverse Charge Expenses (20%)
  • VAT on Imports
  • Zero Rated EC Expenses
  • Zero Rated EC Goods Income
  • Zero Rated EC Services
  • Zero Rated Expenses
  • Zero Rated Income

If you add your own accounts to the chart of accounts, you choose the tax rate for the account. At any time you can change the tax rate by editing the account.

Xero picks up VAT from any tax rate used on invoices, bills or other transactions. The VAT displays on the VAT Return or Flat Rate VAT Return, and on the VAT Audit Report. You don't need to create any VAT accounts for imports, or transactions that have no VAT. Find out more about how Xero manages VAT:

How does the VAT Return work?

If the tax rates don't meet the needs of your business you can add your own tax rates.

Flat rate VAT

If you are using flat rate VAT reporting, your chart of accounts has these special features:

  • Additional default tax rates:

    • 20% (VAT on Capital Purchases)
    • 20% (VAT on Capital Sales)
  • All asset and expense accounts will have a tax rate of 'No VAT' by default.

If you're not registered for VAT

If you signed up to Xero using the ‘Not registered for VAT’ option then accounts in Xero’s default chart of accounts will not have tax applied. Accounts on transactions you enter will have a default tax rate of No VAT.

If you register your organisation for VAT later, you'll need to edit accounts in your chart of accounts to apply the right default tax rate. Talk to your accountant or bookkeeper about how to do this.

YTD (Year to date)

Image showing YTD.

Each account on your chart of accounts shows a year to date figure. The year starts at the beginning of your organisation's financial year, as set in Financial Settings.

Choose your financial year-end

The YTD balance shown depends on the type of account:

  • Expense and revenue accounts - The sum of all transactions in the account from the start of the financial year. When you click on the YTD balance you'll see all transactions for the account, not just those for the financial year.
  • Asset, liability & equity accounts - The balance as at today's date. When you click on the YTD balance you'll see all the transactions counted in the balance.

The YTD balance displays in the YTD column on the Dashboard if you mark the account to go on the Account Watchlist.

Your Xero Dashboard