How does the Unleashed and Xero Integration Work?

How does the Unleashed and Xero Integration Work?
[Warning: Some accounting jargon contained within]

If you’ve just set up your Unleashed and Xero integration or are investigating setting it up this article is for you. People with an existing Unleashed and Xero integration that they want to understand better will also benefit from reading this article.

Unfortunately the best way to describe the effect of Unleashed on your accounting system is with the effect of the accounting journal entries. Below I have detailed out the accounting effect for each Unleashed transaction. I have also narrated these for the reader’s benefit. While most of these transactions will be familiar to all businesses, some are industry specific so don’t worry if you don’t recognise some of these.

Purchasing:
Place Purchase Order
Placing a purchase order does not create an accounting transaction.

Receipt/Complete Purchase Order
DR Stock on Hand (RM) 40
CR Accounts Payable 40

Purchase-related Costs (Freight):
DR Stock on Hand 5
CR Accounts Payable 5

Manufacturing:
Complete an Assembly:
DR Stock on Hand (Finished Goods) 45
CR Stock on Hand (Raw Materials) 45
This is an Unleashed-only transaction but I’ve detailed it here to show that there is no effect to the value of the product at this point.

Supplier Costs to Manufacturing: (On completion of assembly)
DR Stock on Hand (Finished Goods) 10
CR Accounts Payable 10
This applies the value of additional costs and services incurred during the assembly process to the products involved in the assembly.

Selling:
Dispatch: Completion of Shipping Note
DR Cost of Goods Sold 55
CR Stock on Hand (Finished goods) 55
IMPORTANT: This will appear as a $0.00 Accounts Payable in your accounting system. The net effect on accounts payable is $0.00 however the movement in COGS and SOH is important. Do not delete these.

Customer Invoice: Completion of Invoice
DR Accounts Receivable 100
CR Sales 100

Customer Credit with Stock Return:
DR Stock on Hand 55
CR Cost of Goods Sold 55

DR Sales 100
CR Accounts Receivable 100

Supplier Credit with Stock Return
DR Accounts Payable 40
CR Stock on Hand 40

Other Stock Movements:
Stocktake/Stock Adjustment Upward:
DR Stock on Hand 10
CR Cost of Goods Sold 10
Your COGS side account here can be selected at the time of the adjustment

Stocktake/Stock Adjustment Downward:
DR Cost of Goods Sold 10
CR Stock on Hand 10
Your COGS side account here can be selected at the time of the adjustment

Several of the transactions and accounts above can be customised to go to specific accounts depending on the product sold. Sales accounts for example can be separated by product category in your accounting system to provide more information on your P&L automatically. The same can be done with the Cost of Goods Sold (COGS) account with a corresponding COGS account for each revenue account. Your stock adjustments can also be coded to unique accounts for repeating events like wastage, expiry or damage.

Key Points with the Unleashed and Xero Integration:

There are several key points that anyone setting up or using the Unleashed and Xero integration should be aware of which I have detailed out below. These represent the major differences between the way the integration works and the way inferior inventory systems will work.

  1. Multi-currency rates
    Unleashed and Xero treat currency differently. Unleashed is primarily concerned with the accurate measurement of product costs where Xero is concerned with the recognition of gain/loss on exchange in that it affects the P&L. Unleashed will use the currency rate on the supplier invoice where Xero will use the currency rate on the date of the supplier invoice. This can create discrepancies between Unleashed and Xero in the value of Cost of Goods Sold and Stock on Hand.
  2. Separation of Dispatch and Invoicing
    If you’re coming from a simply inventory background or have used an inventory module within an accounting system you might be surprised to see that two separate transactions occur for each sale: the stock movement and the accounts receivable. This is much more accurate as it reflects in your balance sheet the the true value of your stock on hand even though it might not have been invoiced yet.
  3. Capitalisation of product related costs
    One of the unique features of Unleashed is its ability to allocate product based costs from purchasing and assembling across in the items in the order or assembly. This is the only way to accurately measure a product’s true cost and margin. In accounting this can be thought of capitalising the costs associated with preparing a product for sale into the value of each product. Until now the difficulty in measuring this has prevented most people from treating inventory this way. This has been allowed through improved technology and innovation from apps like Unleashed.
  4. Sales Tax
    Depending on what country you’re operating in Sales Tax (GST, VAT etc) may apply to some of the transactions above. These should all go the same sales tax account in your accounting system providing you with a net sales tax balance each tax period.

The above combination of transactions between Unleashed and Xero allows you to reduce your data entry time, measure your true product costs, provides a real-time inventory balance and improves your financial reporting. For help setting up this integration or if you feel your integration is not working for you we cover Setting up your Unleashed and Xero Integration and Reconciling your Stock on Hand between Unleashed and Xero in the Unleashed Tune Up course.

If you’d like to discuss your Unleashed or Xero settings I’d recommend booking a quick session with us using this link.

What our fans say

Will and Reuben are two of the great cloud integration pioneers transforming cloud technology for small business in New Zealand. Both have demonstrated an unwavering commitment to the pursuit of knowledge, and are well regarded as thought leaders in the industry. The Link Academy Course represents an exciting opportunity to tap into their wealth of knowledge to empower your business and harness the full customisation and flexibility that WorkflowMax provides.

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