Intermediate
How to set up chart of accounts on Xero
Quick Answer
Setting up a chart of accounts in Xero involves navigating to the Accounting menu, selecting Chart of Accounts, and adding or customizing account codes and names to match your business structure. Xero provides default accounts that can be modified or supplemented with custom accounts based on your specific business needs.
Prerequisites
- Active Xero subscription
- Admin or advisor access to Xero organization
- Basic understanding of accounting principles
- Business registration details and tax numbers
1
Access the Chart of Accounts
Log into your Xero organization and click on Accounting in the main navigation menu. Select Chart of Accounts from the dropdown menu to view your current account structure. Xero will display a default chart of accounts based on your business type and country settings.
Tip
Review the default accounts first - many businesses can use Xero's standard setup with minimal modifications.
2
Review and Customize Account Categories
Examine the existing account categories including Assets, Liabilities, Equity, Income, and Expenses. Click on any category to expand and view the individual accounts within it. Note the account codes and names that Xero has automatically created for your business type.
Tip
Account codes should follow a logical numbering system - assets typically start with 1xxx, liabilities with 2xxx, equity with 3xxx, income with 4xxx, and expenses with 5xxx or higher.
3
Add New Accounts
Click the Add Account button to create custom accounts for your business needs. Enter an
Account Name, select the appropriate Account Type from the dropdown, and assign a unique Account Code. Choose whether the account should be enabled for payments and set tax rates if applicable.Tip
Use descriptive account names that your team will easily understand, and maintain consistent numbering gaps (like 10 or 100) between codes for future additions.
4
Configure Tax Settings
For each account, click on the Tax Rate dropdown to assign the appropriate tax treatment. Select options like
Tax on Sales, Tax on Purchases, or No Tax based on how transactions in this account should be handled. Ensure income accounts have the correct sales tax settings and expense accounts have appropriate purchase tax configurations.Tip
Default tax rates can be changed later, but setting them correctly now will save time when entering transactions.
5
Set Up Bank Account Integration
Navigate to Accounting > Bank Accounts and click Add Bank Account to connect your business bank accounts. Enter your bank account details and select the corresponding account from your chart of accounts. Choose whether to enable bank feeds for automatic transaction importing.
Tip
Bank account names in Xero should match your actual bank account names to avoid confusion during reconciliation.
6
Configure Account Codes and Reporting
Click on individual accounts to edit their properties, including
Show in Expense Claims and Enable Payments to this Account settings. Verify that account codes follow your preferred numbering system and adjust the Description field to provide additional context for users. Set accounts as Active or Archived based on current business needs.Tip
Use the description field to clarify account purposes, especially for accounts with similar names or functions.
7
Review and Test Account Structure
Navigate to Reports > Account Transactions to preview how your chart of accounts will appear in financial reports. Create a test transaction using Accounting > Manual Journals to verify that accounts behave as expected. Check that the account hierarchy and groupings make sense for your reporting needs.
Tip
Run a trial balance report to ensure your chart of accounts structure will provide meaningful financial insights.
8
Finalize and Save Configuration
Review all account settings one final time, paying attention to account codes, names, and tax configurations. Click Save on any modified accounts and verify that all changes have been applied correctly. Consider exporting your chart of accounts using Settings > General Settings > Export Data as a backup reference.
Tip
Document your chart of accounts structure and naming conventions for future reference and team training.
Troubleshooting
Cannot delete or modify default accounts
Xero prevents deletion of default accounts that have been used in transactions. Instead, rename the account or archive it by clicking Archive in the account settings. Create a new account with your preferred name and code.
Duplicate account codes error
Each account code must be unique within your organization. Check existing codes in Chart of Accounts and use the search function to verify availability. Choose a different code or modify the existing account if it's no longer needed.
Tax rates not appearing correctly
Ensure your organization's tax settings are configured correctly in Settings > General Settings > Tax Rates. If custom tax rates are needed, create them first before assigning to accounts. Contact your accountant if you're unsure about tax classifications.
Accounts not showing in transaction forms
Verify the account is set to
Active status and check that the account type is appropriate for the transaction type. Income accounts won't appear in expense forms and vice versa. Review the Show in Expense Claims setting for expense-related accounts.Ready to get started with Xero?
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