How to Fix a Messy Xero File Before Tax Time
It’s a situation we see every year. You started the financial year with good intentions, but business got busy. Now, your accountant is asking for your Xero file, and you know deep down it’s a disaster zone.
Unreconciled lines, duplicate invoices, and negative bank balances. It’s stressful, but it’s fixable. Before you hand your file over (and get charged a fortune for your accountant to fix it), follow this 5-step rescue guide.
1. The "Statement Balance" Reality Check
Just because you have reconciled all the lines in Xero doesn't mean your bank is actually balanced. This is the #1 error we see.
Go to your Dashboard and look at the bank account widget. Compare the Statement Balance in Xero with the actual PDF statement from your online banking for that same date.
- If they match: Great! Move to step 2.
- If they don't match: You likely have missing transactions (bank feed dropped out) or duplicate transactions (you imported data twice). Do not proceed until these figures match.
2. Clear the "Suspense" Account
When business owners don't know where to code a transaction, they often dump it into "Suspense" or "Ask My Accountant." While this is okay for one or two items, leaving 500 transactions here is a red flag for the ATO.
Run a General Ledger Report for the Suspense account. Go through line by line and re-code them to the correct expense account (e.g., Office Supplies, Travel, Software). If you don't know what it is, ask us!
3. Ghost Invoices (Aged Receivables)
Look at your "Aged Receivables" report. Do you see invoices from 2024 that are still marked as "unpaid"?
Likely, the client did pay you, but you reconciled the money received to "Sales" instead of matching it against the invoice. This doubles your income in Xero and means you will pay tax on money you don't actually have.
4. Check Your GST Codes
A messy file often has GST claimed on things that shouldn't have it. Common mistakes include:
- Bank Fees: These are GST Free, not GST on Expenses.
- Wages/Super: These should be BAS Excluded.
- Overseas Software (e.g., Zoom/Google): Often these don't charge GST, but Xero defaults to claiming 10%. Check the actual receipt.
5. Finalise Single Touch Payroll (STP)
Just paying your staff isn't enough. At the end of the financial year, you must perform an STP Finalisation within Xero. This tells the ATO that the wages are "final" so your employees can access their Income Statements on myGov.
If you don't do this, your staff can't lodge their tax returns, and you may face penalties.
Too overwhelming to fix yourself?
Don't spend your weekend fighting with Xero. We offer a "Xero Rescue Package" where we audit your file, fix the errors, and hand you a clean slate ready for tax time.
Book a File Rescue SessionSummary
A clean Xero file isn't just about tax compliance; it gives you the clarity to know if your business is actually making money. If you've fallen behind, the best time to start fixing it is today.