We lock Xero at year end as a business’ year end is a snapshot in time which shows how the business has performed over the last financial year. The year end accounts are also then used to prepare the tax return and to calculate the business’ tax liability.
Once we have completed all the year end procedures and prepared the accounts, we lock Xero at the year end date. This is to stop any postings or invoices or bills being processed or entered into the prior year. They may not be intentional postings but mispostings can also easily be made by accidently entering the wrong date. Any entries that are made into the previous financial year after the year end accounts have been done will change the figures in your accounts and the accounts which have then been filed with companies house will then differ from the accounts in Xero. This will not only cause confusion but may also mean that you miss out on valid tax deductible expenses. It will also change the opening balances for the following financial year so when your accountant comes to prepare your next set of accounts, valuable time will be wasted trying to find why the opening balance is different. And we all know, time is money!
If your business is VAT registered and we do your VAT returns, we also lock Xero at the VAT quarter end once the return has been prepared and sent to you for sign off. This prevents any back postings which would then change the VAT return you have been sent to approve. The quarter will stay locked once the VAT return is filed so that no postings, accidental or otherwise, are posted into the previous quarter without us knowing about it and treating it correctly. This will stop you missing out on claiming VAT which you may otherwise be able to claim. If you do your own bookkeeping and VAT returns, it would be good practice to also lock Xero at the quarter end once you have submitted your return.
There are so many great functions in Xero that we absolutely love! If you’d like to know more take a look at our blog – If you’re not using Xero correctly, you’re not seeing the real magic and for our clients we also offer a Xero training session so that you can unlock more of the magic yourself! If you’d like to find out more, please do get in touch!