Xero | Options for clearing small balances

This guide will show you how to clear small balances on client /supplier accounts when needed. 

1. Clearing small balance by adjustment in bank reconcilaiton

Xero allows you to create minor adjustments when a bank statement line doesn't precisely match the transaction due to rounding or human error. For example, the client pays an invoice but it is a few cents over / under the invoice total. 

To create an adjustment 

• Select the bank account
• Find the relevant bank statement line
• Match the transaction
• Scroll down to section 3 and click on adjustment button

Option 1: Enter adjustment using 'bank fee' . This feature allows flexibilty to decide which account to put your adjustment. Please consult with your accountant / bookkeeper for the preferred account to use for your business.

• Select Bank fee
• Select Contact (transaction will be linked to the contact record)
• Enter description
• Select the account to put the adjustment (eg. this could be bank fee, cash shortages and differences account)
• Click Reconcile

Option 2:  Enter as Minor Adjustment.  When you make a minor adjustment Xero automatically posts a reconciliation adjustment to the rounding account.  There is no option to select an alternative account.  The rounding account is a Balance Sheet account and will need to be cleared. Please consult with your accountant to ensure this account is cleared.

• Select "Minor Ajdustment" 
• Enter the adjustment amount
• Click reconcile.

2.  Clearing small credit balances on Client

Small differences that cannot be cleared during bank reconcilaition may still arise.  Two examples below.

Example 1: Unapplied credits imported accross from NetSuite. Since these transactions impacted the AR and AP balances as at your Xero conversion date, they had to be imported into Xero. 

Example 2: Clients may have previously made overpayments, the majority of the balance has been applied to open invoices and there are no other invoices to apply the small remaining balance.

Where balances are not going to be refunded to the Client or applied to invoices, you can record a 'refund' on these balances, using an alternative account instead of the bank account.  The nominated account must first be set to 'enable payments'. Click here for instructions.

To make a refund using alternative account instead of bank account

• Navigate to the Credit (credit note, overpayment, prepayment)
• Scroll down to 'Make a cash refund' section 
• Enter Amount
• Enter Date
• In Paid From field, enter the account (as agreed with your accountant), 
• Enter Reference (optional)
• Click Add Refund

3. Small debit balances (invoice still in awaiting payment status)

In the event that adjustments were not made during the bank reconciliaiton and the invoice is showing as 'awaiting payment' you can write these off using either of the below methods

Option 1: Creating and applying a credit note

The process is similar to writing off an invoice as a bad debt. The only difference may be the account you select, depending on what was agreed with by your accountant (eg. this could be discounts given, bad debts, cash shortages, bank fees). 

For step by step instructions see our guide Xero | Manage Bad Debts

Option 2: Add payment using an alternative account instead of the bank account

While credit notes in Xero don't sync to Lightspeed, adding payments to a Xero invoice does sync to Lightspeed, so this option might be considered the easier for clearing small balances.

To add a payment;

• Navigate to invoice
• Click Add Payment
• Ensure date and amount are correct
• In account field > select account as defined by your accountant (eg. this could be discounts given, bad debts, cash shortages, bank fees)
• Reference (optional)
• Click Add