Xero year-end is the process of checking that the bookkeeping for a financial period is complete, reconciling balance-sheet accounts and preparing reliable records for the accountant. Xero uses a continuous ledger, so there is no single button that permanently closes one year and opens the next.
The work is instead completed through a structured review of bank accounts, customer balances, supplier bills, VAT, payroll, loans, fixed assets and other balance-sheet accounts. Once the figures have been checked and any necessary adjustments posted, lock dates can be applied to reduce the risk of completed periods being changed accidentally.
A well-managed year end should build on bookkeeping maintained throughout the year. It should not begin with several months of missing transactions, unreconciled accounts and unexplained balances shortly before the filing deadline.
What Xero year-end involves
Xero year-end involves confirming that transactions have been entered in the correct period and that the accounting balances agree with supporting records.
The principal tasks normally include completing bank reconciliations, reviewing unpaid customer and supplier invoices, checking VAT and payroll balances, identifying accruals and prepayments and preparing fixed-asset and loan information.
The business should also review unusual balance-sheet accounts, director or owner balances, suspense accounts and transactions entered after the year end that may relate to the closing period.
The accountant can then use the completed bookkeeping to prepare statutory accounts, tax calculations and any formal year-end journals.
Confirm the financial year-end date
The financial year-end date in Xero should agree with the official accounting period used by the business.
For a limited company, this normally corresponds with the accounting reference date recorded at Companies House. Sole traders and partnerships should confirm the relevant accounting period with their accountant.
The date affects the default periods used in annual reports and comparative information. An incorrect setting may cause reports to cover the wrong months even where the underlying transactions are accurate.
The financial year-end date should therefore be reviewed before annual reports and schedules are produced.
Complete all bookkeeping transactions
All known income, purchases, expenses, refunds and other transactions relating to the financial year should be entered.
Supplier invoices received before the year end should be recorded even where they remain unpaid. Sales invoices for work completed during the period should also be reviewed.
Costs paid personally by a director, owner or employee should not be omitted merely because they did not pass through the business bank account.
Draft bills, invoices and expense claims should be examined. Genuine transactions should be completed, while duplicates and abandoned drafts should be removed where appropriate.
Complete bank reconciliation in Xero
Every bank account, savings account, business credit card and payment platform should be reconciled to an independent statement covering the year-end date.
Processing every imported bank-feed line does not by itself prove that the account is correct. The closing Xero balance must agree with the corresponding external statement after genuine outstanding items have been considered.
Missing transactions, duplicates, incorrect dates and entries posted to the wrong account should be investigated before reports are finalised.
Our guide to bank reconciliation in Xero explains the detailed process for matching transactions, checking transfers and resolving differences.
Review unreconciled transactions
Transactions entered in Xero without a matching bank-statement line should be reviewed carefully.
Some may be genuine payments or receipts that cleared shortly after the year end. Others may represent duplicate entries, incorrect dates or transactions that never occurred.
Old unreconciled items should not be carried forward indefinitely merely because resolving them requires additional investigation.
The correct treatment should be supported by bank evidence, customer records, supplier statements or other documentation.
Check transfers between business accounts
Money moved between two business accounts should be recorded as a transfer rather than as income in one account and an expense in another.
This includes movements between current and savings accounts, company credit-card repayments and transfers involving payment platforms.
Both sides of the transfer should be checked to ensure the amount and date agree.
Incorrect transfers can distort turnover, expenditure and profit while also leaving one or both accounts unreconciled.
Review aged receivables
The aged receivables report shows customer invoices that remain unpaid at the year-end date.
Each material balance should be reviewed to confirm whether it remains collectible, was paid after the year end, is disputed or has been matched incorrectly.
Old balances may result from duplicate invoices, customer payments posted directly to sales or credit notes that were never allocated.
Where a debt appears genuinely irrecoverable, the accountant or bookkeeper should consider whether it should be written off and whether any related VAT adjustment may be available.
Review aged payables
The aged payables report shows supplier invoices that remain unpaid at the year end.
The balances should be compared with supplier statements and payments made shortly after the year end.
An invoice may appear outstanding because its payment was coded directly to an expense account rather than matched against the bill.
Old supplier balances may also represent duplicated invoices, unapplied credit notes or liabilities that no longer exist.
Check sales and purchase cut-off
Income and expenditure should be recorded in the accounting period to which they relate.
A sales invoice issued after the year end may relate to work completed before it. A supplier bill received later may relate to goods or services used during the closing period.
The accountant may use accruals, deferred income, prepayments or work-in-progress adjustments to place these amounts in the correct period.
The business should provide invoices, contracts and project information from immediately before and after the year end so the correct cut-off can be assessed.
Review accruals
An accrual records an expense that relates to the closing year but has not yet been invoiced or entered fully.
Examples may include professional fees, utilities, interest or subcontractor costs relating to work completed before the year end.
The amount should be based on available evidence rather than a general estimate used merely to reduce profit.
The accountant may post the accrual through a manual journal and reverse it in the following period when the actual invoice is recorded.
Review prepayments
A prepayment arises where the business has paid for a cost covering a period beyond the financial year end.
Examples can include insurance, software subscriptions, rent and annual licences.
The portion relating to the following period may be removed from the current year’s expense and shown as an asset on the balance sheet.
The calculation should be supported by the supplier invoice, contract dates and an appropriate allocation method.
Check deferred and accrued income
The business may have received customer money before earning the income or completed work before issuing the related invoice.
Money received in advance may need to be treated as deferred income rather than current-year revenue.
Work completed but not yet invoiced may require accrued income or work-in-progress treatment.
The accountant will need information about contracts, delivery dates, project completion and customer billing arrangements.
Reconcile VAT accounts
The VAT balance in Xero should agree with submitted VAT Returns, payments made to HMRC and any amount outstanding or repayable at the year end.
Check that every return covering the period has been submitted and that the corresponding payment or refund appears in the correct VAT account.
VAT control accounts should not contain unexplained historical balances or adjustments entered solely to make the figures appear reasonable.
Our VAT returns service explains how digital records, VAT coding and reconciliation form part of an MTD-compliant process.
Review transactions included in later VAT Returns
The financial year end may fall partway through a VAT quarter.
Transactions from the closing accounting period may therefore be included in a VAT Return submitted after the year end.
The year-end VAT liability should reflect the VAT arising from transactions up to the closing date, whether or not the related return has already been submitted.
The accountant may need a VAT report covering the exact year-end date rather than relying only on quarterly submitted-return totals.
Reconcile payroll balances
Payroll reports should agree with the wages, PAYE, National Insurance and pension balances recorded in Xero.
Net wage payments should match the employee-payment liability rather than being posted as additional wage expenses.
Amounts owed to HMRC and pension providers should agree with payroll reports and payments made after the year end.
Our payroll services can support PAYE calculations, RTI submissions and payroll bookkeeping where these tasks form part of the agreed engagement.
Check the payroll year-to-date figures
The financial year may not end on the same date as the payroll tax year.
The business should therefore obtain payroll reports covering the accounting period as well as the standard tax-year information.
Gross wages, employer National Insurance, pension costs and statutory payments should agree with the accounts.
Any payroll journals posted manually should be checked for duplication against journals generated automatically by Xero Payroll or another payroll system.
Review director and owner accounts
Limited companies should review director loan accounts for personal expenditure, money introduced, reimbursements and withdrawals not processed through payroll or dividends.
Personal purchases should not remain within ordinary business expense categories merely because they were paid from the company account.
Dividends should be supported by sufficient distributable profits and appropriate company records.
Our guide to director salary and dividends explains why salaries, dividends and director loan movements require different treatment.
Review loans and finance agreements
Loan balances in Xero should be compared with lender statements and repayment schedules.
Repayments normally include a capital element and an interest or finance-charge element. Posting the full payment as an expense can overstate costs and leave the liability incorrect.
New loan agreements, hire-purchase arrangements and refinancing completed during the year should be supplied to the accountant.
Any balances due within 12 months may also need to be separated from longer-term liabilities in the year-end accounts.
Review fixed assets
The fixed-asset register should include equipment, vehicles, machinery, furniture and other assets retained for continuing use.
Check that purchases have been recorded as assets where appropriate rather than posted entirely to ordinary expenses.
Disposals, trade-ins and scrapped assets should also be recorded so items no longer owned by the business do not remain on the register.
The accountant may post depreciation and consider capital allowances separately when preparing the tax computation.
Our guide to the Annual Investment Allowance explains how qualifying plant and machinery may receive tax relief.
Review stock and work in progress
Businesses holding stock should complete an appropriate count at or near the financial year end.
The records should show quantities, valuation basis and items that are damaged, obsolete or unlikely to sell at their recorded value.
Service and project businesses may also need to identify work completed but not yet invoiced.
The accountant will use this information to determine the appropriate stock or work-in-progress adjustment.
Review suspense and uncategorised accounts
Suspense and uncategorised accounts should contain only genuinely unresolved transactions.
A large balance may indicate that transactions were processed without enough information or that queries were never answered.
Each item should be investigated and moved to the correct account where supporting evidence is available.
Unexplained balances should not be cleared through a general expense or journal merely to make the account appear empty.
Check retained earnings and opening balances
Xero carries balance-sheet accounts into the next financial year automatically.
The user does not normally need to create a manual journal to close annual profit into retained earnings merely to begin the new year.
Opening balances should agree with the previous year’s final accounts and any accountant adjustments posted into Xero.
Unexpected differences may indicate that transactions were changed after the previous period was finalised.
Review manual journals
Manual journals posted during the year should be reviewed for supporting calculations, dates and appropriate account treatment.
Particular attention should be given to journals affecting VAT, payroll, director accounts, loans and retained earnings.
Journals should not be used as a substitute for entering customer invoices, supplier bills or bank transactions through their proper workflows.
The history and notes should explain why each material journal was posted and who authorised it.
Run the year-end reports
The year-end reporting pack should normally include a trial balance, profit and loss report and balance sheet.
It may also include aged receivables, aged payables, bank reconciliation reports, VAT reports, payroll summaries and fixed-asset information.
The reports should use the correct accounting basis and exact financial year-end date.
Comparative reports can help identify unexpected movements that require investigation before the figures are sent to the accountant.
Review the profit and loss account
Compare income and expense categories with the previous year, budget or earlier months.
Unexpected changes may indicate missing sales, duplicated costs, incorrect categories or genuine commercial changes requiring explanation.
Review unusually large items and general categories such as miscellaneous expenses.
A report showing reasonable profit does not prove that the bookkeeping is complete, so the balance sheet must also be reviewed.
Review the balance sheet
The balance sheet is often where unresolved bookkeeping errors remain visible.
Check bank accounts, customer balances, supplier balances, VAT, payroll, loans, fixed assets, director accounts and suspense balances.
Negative or historical balances should be investigated rather than accepted because they have appeared in previous periods.
Every material balance should be capable of being explained and, where appropriate, supported by an external statement or schedule.
Prepare supporting schedules
The accountant may need schedules showing fixed assets, loans, accruals, prepayments, stock, director accounts and other material balances.
Each schedule should agree with the corresponding Xero balance.
Differences between the schedule and nominal ledger should be identified before the records are handed over.
Clear schedules reduce the time spent asking basic questions and help the accountant focus on formal accounts and tax work.
Provide documents to the accountant
The year-end package may include bank statements, finance agreements, VAT Returns, payroll reports, pension information, stock records and major purchase invoices.
The accountant may also request details of legal disputes, guarantees, commitments, grants and events occurring after the year end.
Documents should be supplied through one organised process rather than scattered across several email chains.
The business should also identify transactions or balances it does not understand rather than leaving the accountant to discover them independently.
Post the accountant’s year-end adjustments
The accountant may provide journals for depreciation, Corporation Tax, accruals, prepayments and other year-end matters.
These adjustments should be entered into Xero using the exact dates, accounts and descriptions supplied.
The final Xero trial balance should then agree with the completed statutory accounts.
Duplicate journals should be avoided where the accountant has already entered adjustments directly through their own Xero access.
Apply lock dates in Xero
After the bookkeeping and year-end adjustments have been completed, lock dates can help prevent accidental changes.
A business may use one lock date applying to most users and a separate adviser lock date restricting changes by users with broader permissions.
The appropriate date should be agreed with the accountant after the final accounts and adjustments have been confirmed.
A lock date does not permanently erase the ability to correct an error, but it makes changes more controlled and visible.
Do not lock the year too early
The period should not be locked before bank reconciliations, VAT checks and accountant adjustments have been completed.
Locking an incomplete year does not make the records accurate. It may simply make the remaining corrections more difficult.
Where a necessary transaction is discovered after locking, an authorised user can review the correct process with the accountant.
The objective is to protect finalised information, not prevent legitimate corrections.
Prepare for the new financial year
Xero continues recording transactions into the new year without a formal system rollover.
The business should nevertheless review recurring invoices, budgets, tracking categories, payroll settings and user access.
Old bank rules, inactive contacts and obsolete accounts may also need to be reviewed.
Our guide to preparing for the new tax year explains wider bookkeeping and payroll checks that may also be relevant.
Common Xero year-end mistakes
A common mistake is assuming that clearing the bank-feed reconciliation screen means the bank account is fully reconciled.
Other errors include leaving old customer and supplier balances unresolved, posting complete loan repayments as expenses and ignoring payment-platform accounts.
Businesses may also omit costs paid personally, fail to check VAT and payroll liabilities or post unsupported journals to suspense accounts.
Another common problem is changing transactions from a previously completed year without reviewing the effect on the final accounts.
How regular bookkeeping simplifies Xero year-end
Year-end preparation is faster where bank accounts are reconciled monthly, invoices are entered promptly and balance-sheet accounts are reviewed throughout the year.
Missing information can then be requested while transactions remain familiar.
Our guide to good bookkeeping habits explains how regular processing and reconciliation prevent year-end reconstruction.
Reliable monthly records also give the business more time to understand likely tax liabilities and prepare the required cash.
Outsourcing Xero year-end bookkeeping
An outsourced bookkeeper can complete transaction processing, reconcile accounts, review customer and supplier balances and prepare the records for the accountant.
The business still needs to provide supporting documents, explain unusual transactions and approve the information supplied.
Bookkeeping Packages Ltd provides Xero bookkeeping services that can include monthly processing and year-end preparation.
Our wider bookkeeping services can also include catch-up work where records have fallen behind before the year-end review begins.
Getting help with Xero year-end
The first step is to review the financial year-end date, bank reconciliations, outstanding invoices and material balance-sheet accounts.
We can then identify missing records, old unreconciled items and areas requiring clarification before the information is passed to the accountant.
Where substantial historical correction is required, the clean-up work can be agreed separately from the ongoing monthly service.
To discuss Xero year-end preparation and the current condition of your accounts, use the Bookkeeping Packages enquiry form or call 0161 531 0087.
About the Author
Stuart Kerr is Managing Director of Bookkeeping Packages Ltd, an outsourced bookkeeping service supporting UK small businesses and accountancy practices. With over 20 years of bookkeeping experience, Stuart specialises in helping businesses maintain reliable financial records and useful management information.
This article is provided for general information only. Stuart Kerr is a professional bookkeeper, not a tax, legal or regulated financial adviser. Nothing in this article constitutes tax, legal or financial advice. Advice specific to your circumstances should be obtained from an appropriately qualified professional.