How to Track Expenses in Xero: Keeping Your Finances in Check

Keeping on top of expenses is a constant challenge for most businesses.

Luckily, Xero offers a robust yet intuitive expense tracking system to help you stay organized and make data-driven spending decisions.

In this post, you'll discover how to record, manage, and analyze expenses in Xero to optimize workflows and maintain financial accuracy.We'll cover everything from capturing receipts to automating approvals so you can keep your finances in check.

Introduction to Expense Management with Xero

Xero is a popular online accounting software that helps small businesses track their finances and manage key tasks like invoicing, reporting, and expense claims. Effective expense tracking is crucial for keeping costs low, monitoring spending, and simplifying accounting.

In this article, we will cover the basics of how to track expenses within Xero to maintain organized finances across your business. You will learn:

How Xero enables streamlined expense tracking through features like receipt scanning and mileage logs
Step-by-step instructions to set up expense categories and assign expenses to customers
Tips for leveraging Xero's automation and integration capabilities for easier expense management

The Role of Xero in Effective Expense Tracking

Xero makes it simple to log expenses as they happen and keep everything in one place. You can:

Scan or photograph receipts and have the data automatically logged with online storage
Track mileage driven for business purposes based on job type or vehicle
Set up expense categories that match your chart of accounts
Assign expenses directly to customers or projects

With robust reporting, you can view expense claims trends over time, identify top-spending customers or projects, receive alerts on duplicate receipts, and more. This helps optimize costs and make informed spending decisions.

Getting Started with Expense Tracking in Xero

Follow these basic steps to activate expense tracking features in your Xero account:

Set up expense categories for common expense types like Travel, Office Supplies, Meals & Entertainment, etc. These should match your existing chart of accounts.
When making purchases related to a customer or job, select the appropriate customer/job name during expense entry.
Take photos of receipts through the Xero mobile app. The app extracts key details and stores images in your account.
Review expense claims for accuracy. Add any missing details like tax amounts or mileage.
Submit expense claims for approval by managers. Xero has built-in approval workflows.
Reimburse employees via integrated payments. The software codes expenses to the designated chart of accounts.

With some initial configuration, Xero handles much of the heavy lifting of collating expenses, extracting data from receipts, assigning costs to jobs, and simplifying reporting. This saves time for everyone and leads to greater financial transparency.

How do I record expenses payment in Xero?

Recording expense payments for multiple expenses for a single employee in Xero is straightforward. Here are the steps:

In the Business menu, select Expense claims.
Select the To pay tab.
Next to the employee, click Pay All.
Select the checkbox for each expense claim you want to pay, then click Batch Payment.
Enter the details in the batch payment fields:
- Payment date
- Payment method
- Bank account
Click Make Payments.

This allows you to easily select and pay multiple expense claims for an employee all at once. The payments will show up under the Banking menu as individual expense claim payments.

Some tips when paying expense claims in Xero:

Review expense claims before paying to verify validity.
Set up expense payment reminders if you tend to forget.
Pay frequently instead of letting claims build up.
Check if you can automate any repeat expense payments.

Recording batch expense payments is a useful way to efficiently manage multiple claims for employees. It saves the hassle of processing each small payment individually.

How do I track expenses in Xero?

Tracking expenses in Xero is easy with their mobile app and automated receipt scanning. Here are the key steps:

Snap a photo of your receipt using the Xero Me mobile app. The app will automatically scan the key details like the vendor, date, and amount.
Review and submit the scanned details to create an expense claim in seconds. Attach the photo of the receipt as backup.
Categorize expenses when submitting claims. Label expenses by customer, project, account code or tracking category. This keeps costs allocated properly.
Track mileage for vehicle expenses. Log business trips in the Xero Me app to automatically calculate mileage reimbursements.
Manage expense claims in one centralized place within Xero accounting. Approve, reject or send claims back for clarification.
Analyze expenses with built-in reports. Review spending by time period, category, customer, employee and more to simplify expense oversight.

The automated receipt scanning and streamlined expense claims processing through the mobile app makes it easy to stay on top of expenses. Detailed categorization and reporting provides the visibility you need to keep costs in check.

How do you record expenses paid by the owner's personal funds in Xero?

Recording expenses paid from an owner's personal funds in Xero is easy with just a few steps.

First, go to the Chart of Accounts section under Accounting in Xero and search for the "Funds Introduced" account. For most Xero users, this will be account 970 - Owner A Funds Introduced.

Once you locate the Funds Introduced account, edit the account details. Make sure the "Enable Payments to this Account" box is checked. This allows expenses to be assigned to this account when recording transactions.

Next, when you go to record a business expense paid with personal funds, choose the Funds Introduced account as the bank account. Categorize the expense to the appropriate expense account as usual.

For example, if you paid $100 out of pocket for office supplies, you would:

Select Funds Introduced as the bank account
Categorize the $100 transaction to Office Supplies expense
Add a memo with details about the purchase

The transaction will show as a deposit into the Funds Introduced account and an expense in Office Supplies. At any time, you can reimburse the funds back to your personal bank account by recording a payment transaction from your business bank account to the Funds Introduced account.

Following this process allows you to accurately track expenses paid personally along with all other business transactions in Xero. It provides transparency into the money owners contribute to the business.

How do I manage expense claims in Xero?

Managing expense claims in Xero is easy with their user-friendly interface. Here are the key things you need to know:

Viewing and Editing Claims

To view and edit existing expense claims:

Go to the Business > Expense Claims menu.
If you have both new and classic claims, click Go to classic expense claims.
Click the relevant tab, then select a claim or receipt to open it.
Edit any details as required.
Click Save when you're done.

Creating New Claims

To create a new expense claim:

Go to Business > Expense Claims.
Click New Claim.
Enter the claim details like amount, date, description etc.
Attach any receipts by clicking Add Receipt.
Review and submit the claim for approval.

Approving and Paying Out Claims

As the approver, you can review pending claims and either approve or ask for changes. Once approved, you can pay out the claim amount to reimburse your employee.

So in summary, Xero makes expense claim management simple with an intuitive interface to view, edit, approve and reimburse claims efficiently. The key is setting up the approval workflow and submitting detailed claims with receipts.

Setting Up Expense Tracking in Xero

Setting up expense tracking in Xero is straightforward and enables businesses to efficiently manage and categorize expenses. Here are the key steps:

How to Set Up an Expense Category

To track expenses in Xero, you first need to set up expense categories:

Navigate to the Settings menu and select General Settings
Click on Expense Categories under the Transactions section
Click the Add Expense Category button
Enter a name and tax rate for the category
Click Save to add the new category

Some common expense categories to create include:

Office Supplies
Travel
Meals & Entertainment
Advertising & Marketing
Software Subscriptions

Be sure to set up all the categories you are likely to use for accurate expense tracking.

Assigning Expenses to a Customer or Project

Within Xero, you can assign expenses to specific customers or projects:

When entering a new expense, select the appropriate customer or project from the dropdown menu
The expense will then be linked and tracked against that customer/project
You can run Project and Customer expense reports to analyze spending

Assigning expenses improves job costing accuracy and enables precise billing. It also provides helpful analytics on how much you are spending on each customer or project.

Setting up expense tracking with defined categories and assignments takes just a few minutes but pays dividends through insightful reporting. Accurately monitoring expenses is crucial for sound financial management.

Capturing and Managing Receipts in Xero

Effectively tracking expenses is critical for any business. Having detailed records and documentation makes expense claims easier to process and approve. Xero offers several features to help capture and manage receipts and bills.

Scanning Receipts with Xero's Mobile App

Xero's mobile app allows users to quickly scan paper receipts while on the go. The app uses optical character recognition (OCR) to extract key details from receipts like the supplier, amount, and date. This information then auto-populates the expense in Xero for easy coding and reconciliation.

Here are some tips for scanning receipts with Xero's mobile app:

Download the free Xero mobile app from the App Store or Google Play Store
Sign in using your Xero credentials
Navigate to the Expenses section in the app
Select "Add Receipt" and use the phone's camera to capture an image of the receipt
The app will automatically detect and extract key details from the receipt using OCR technology
Review the extracted details and make any corrections or additions
Add an expense account code and optional details like tax rates
Save the scanned receipt, which will now show under Expenses in Xero

Other mobile receipt scanning apps like Expensify integrate with Xero for streamlined expense tracking. These can be useful for frequent business travelers who need to capture many receipts on the go.

Efficiently Processing Supplier Bills

Recording and reconciling bills from suppliers is important for accurate financial reporting. In Xero, bills can be entered manually or imported directly from scanned PDFs or email attachments.

To efficiently process supplier bills:

Navigate to Accounts Payable > Bills in Xero
Click "Add Bills"
Enter the supplier name, date, amount due, account coding, etc.
Attach scanned PDF copies of the supplier invoices/bills
Use the optional reference field to add an internal tracking ID
Save the bill
Later, when paying bills, simply filter to "Awaiting Payment" to view and select bills for payment

Xero's accounts payable features streamline bill processing and payment while retaining detailed documentation. Bill payments can also be exported to accounting or ERP systems. This helps maintain financial compliance and simplifies audits.

Following best practices for capturing, coding, and reconciling bills and expenses makes the process faster and more accurate. Xero provides the tools for businesses to efficiently track documentation and manage AP workflows.

Recording Mileage and Vehicle Expenses in Xero

Tracking mileage and vehicle expenses accurately is critical for businesses to allocate costs to specific jobs or reimburse employees appropriately. Xero offers flexible tools to simplify this process.

Tracking Mileage with Xero Projects

Mobile apps like Everlance provide automated mileage tracking and integrate directly with Xero Projects. Simply:

Download the Everlance mobile app
Connect it to your Xero organization
Turn mileage tracking on when driving for business purposes
Log trips are automatically synced to Xero Projects with date, miles, location details, and photos of receipts
Assign the mileage expenses to specific projects and bill clients

This takes the manual work out of tracking business mileage and ensures you capture every mile driven for your company. The expenses sync seamlessly into Xero for reporting and reimbursements.

Creating Vehicle Expense Claims in Xero

Employees can easily submit vehicle expense claims in Xero:

Go to Expenses > Create Expense Claim
Select the employee to reimburse
Choose "Mileage" as the expense type
Enter the date, miles driven, reason/client, and mileage rate
Attach photos of any gas or toll receipts
Submit the expense claim

Once submitted, the expense claim routes for approval based on your organization's workflow rules. Approved claims generate an expense bill in Accounts Payable to reimburse the employee.

Integrating Xero Expenses with mileage tracking apps provides simple, automated tools to allocate vehicle costs precisely based on usage. This saves accounting time while ensuring costs are attributed correctly.

Analyzing Spending with Expense Analytics in Xero

Xero's built-in expense analytics provide easy-to-understand visualizations of your spending patterns over time. With a few clicks, you can analyze expenses by category, employee, customer, or other dimensions to inform better financial decisions.

Utilizing Xero's Expense Analytics for Data-Driven Decisions

Xero's dashboard displays insightful charts showing expense trends and breakdowns. For example, the "Expenses by Category" report lets you see spending across categories like Travel, Office Supplies, Meals & Entertainment, etc. Comparing actuals to budgets reveals where you're over or underspending.

Other useful reports include:

Expenses by Contact - See spending per customer or supplier
Expenses by Employee - Track individual employee spending
Expenses by Date - Identify seasonal or monthly patterns

With these visual tools, you can catch inappropriate spending, adjust budgets, or optimize costs. The data can also support policy changes around spending limits, approvals, or expense guidelines.

Exporting and Analyzing Detailed Expense Reports

To analyze expenses further, Xero enables exporting transactions into an Excel spreadsheet. The detailed export contains all associated data like:

Date
Contact
Description
Amount
Tax
Employee

In Excel, you can create pivot tables to group, filter, and summarize the data however you want. For example, combine expenses over multiple years to identify long-term trends. Or, apply custom formulas to expose spending metrics unavailable in Xero.

Advanced analysis equips you to better control expenses, guide policy, and promote responsible spending across the organization. Insights from Xero and Excel unearth optimization opportunities for improved financial performance.

Optimizing Expense Management Workflows with Xero

Xero offers powerful expense management features that can streamline workflows for businesses of all sizes. Integrating with other apps expands functionality even further. Here are some ways to leverage Xero for efficient spending processes:

Automating Expense Approvals with WorkflowMax

WorkflowMax is an app in Xero's marketplace that adds approval workflows for large purchases. Key benefits include:

Set multi-step approval chains based on expense amount or type
Automate routing of expenses to approvers via email
Maintain oversight on spending while enabling employee empowerment

For example, expenses over $500 could route to the Finance Manager while the CEO reviews expenses over $5,000. This removes bottlenecks from manual approval while still maintaining oversight.

Linking Online Invoicing to Expense Management

Xero Expenses can sync with bank transactions downloaded via the bank feed. This automates coding expenses to the appropriate categories.

These connected expenses can then link to invoices managed in Xero or online invoicing apps like InvoiceNow. This enables:

Streamlined bill payment reconciliation
At-a-glance reporting on profitability across jobs
Understanding true overhead costs per project

Connecting expenses, invoicing, and payments provides crucial financial insights for the business. It saves significant time reconciling books across multiple systems.

With easy-to-configure workflows and deep ecosystem integrations, Xero is highly extensible for even complex business expense management needs. Streamlining spending approvals and linking expenses to invoicing and payments unlocks essential visibility that helps businesses control costs, improve margins, and scale operations.

Creating and Submitting Expense Claims in Xero

Step-by-Step Guide to Create an Expense Claim

To create an expense claim in Xero, follow these steps:

Navigate to the Expenses tab in Xero and click "Add Expense".
Select the employee who incurred the expense from the drop-down menu.
Enter the date the expense was incurred.
Select the appropriate expense category, such as Travel, Office Supplies, etc.
Enter a description for the expense. Be as detailed as possible.
Attach a receipt by dragging and dropping the file or selecting it from your computer. Receipts are required for all expenses.
Enter the amount spent for the expense.
Select the tax rate if applicable.
Click "Save" to add the expense claim.

Once saved, the expense claim will be visible under Expenses. You can edit or delete expense claims until they are approved.

Managing and Reviewing Expense Claims

To manage expense claims in Xero:

Navigate to Expenses to view all unapproved claims.
Click on each expense to review the details, receipt, amount, etc.
To approve claims, check the box next to each and click "Approve".
Rejected claims will be sent back to employees for correction.
Use filters to view claims by employee, date, category, etc.
Run expense reports to analyze spending over time.

Setting up an approval process ensures expenses are properly validated before being reimbursed. Review claims frequently to avoid reimbursement delays.

Conclusion: Maintaining Financial Accuracy with Xero

Tracking expenses closely in Xero is critical for keeping your finances orderly and avoiding unexpected costs. By following the steps outlined in this post for tracking expenses, creating expense claims, and leveraging Xero's expense analytics, you can achieve greater visibility and control over your financial health.

Here are some key takeaways:

Scan or photograph receipts and attach them to expense claims in Xero to maintain records and simplify reporting
Track mileage for business travel using the Xero mobile app to accurately capture transportation expenses
Set up expense claims for recurring costs like subscriptions to automate the tracking process
Assign expenses to specific customers or projects to understand where your money is going
Review expense analytics in Xero to identify spending trends and areas to optimize

With real-time reporting on expenses through Xero, you can catch overspending early and make adjustments to keep your finances on track. The Xero ecosystem of connected apps also allows you to streamline expense tracking workflows for even easier cost management.

Accurate expense tracking takes discipline, but is essential for making smart financial decisions and fueling business growth. By leveraging Xero's user-friendly expense tools, you can cost-effectively maintain order over your finances.