The accounting behind Xero conversion balances
The following gives you some information about the underlying journals and treatment of balances when you convert to Xero. The balances in your accounting system on the day you are converting to a new system (i.e. Xero) are called conversion balances. Comparative balances are older balances you wish to compare against newer balances in your system. You can enter these into Xero as well.
The following diagram shows an example of the different balances held in Xero.
Entering conversion balances is split into four steps:
- Enter conversion date. This is the date you are going to start using Xero.
- Enter Conversion balances. These are the closing balances in your current accounting system, Excel spread sheet or other record keeping system, as at the last day you are using that form of accounting system. They will become the opening (conversion) balances in Xero.
- Enter historical invoices or bills. These are the invoices or bills that make up the balances of any accounts payable (Purchases) or accounts receivable (Sales) opening (conversion) balance.
- If you are completing the Xero Set up process for your new organization in Xero, clicking the Finish button on the final screen will post the conversion balances and the historical invoices or bills. If you have already completed the Set up process and are entering or making changes to your balances, Confirm button will post any draft historical invoices or bills, and your conversion balances.
An example conversion:
Entering comparative balances is done once the Set up process is complete from the Conversion Balances screen. When you select the comparative balance button, a table of accounts for the previous financial year will display (based on your conversion date and your reporting date) in the same format as your conversion balances. You can add as many previous years as required.
When you enter comparative balances:
- Your conversion journal will reverse.
- Your new comparative balances will post.
- Your new conversion journal will post. The new conversion journal will take into account your comparative balances, your posted historical invoices or bills, and the conversion balances you expect to show in all of your reports.