Accounts payable
Money your business owes to suppliers for goods or services already received but not yet paid. Accounts payable sits on the balance sheet as a current liability until each bill is settled.
Accounts receivable
Money owed to a business by its customers for goods or services already delivered but not yet paid for. Accounts receivable represents a current asset on the balance sheet and is tracked in Xero through open sales invoices.
Accruals
An accrual is an accounting adjustment that recognises income or expenditure in the period it is earned or incurred, rather than when cash changes hands, ensuring the profit and loss account reflects economic reality for that period.
Bad debt
A bad debt is a receivable that a business has concluded it will not be paid, requiring the outstanding amount to be written off as an expense in the profit and loss account and the debtor balance removed from the balance sheet.
Balance sheet
A financial statement that shows what a business owns (assets), what it owes (liabilities), and the residual equity at a specific point in time. Assets must always equal liabilities plus equity — this is the fundamental accounting equation.
Bank feed
A bank feed is a live, direct connection between your bank account and Xero that automatically imports each transaction as it clears, removing the need to upload statements manually and giving you an up-to-date ledger throughout the month.
Bank reconciliation
The process of matching every line on a bank statement to a corresponding record in the accounting software — an invoice, bill, or journal entry — so that the bank balance and the books agree to the penny.
Bank rules
Saved conditions in Xero that automatically categorise or suggest a match for bank statement lines whose description text meets the criteria you define — for example, coding every line containing "STRIPE PAYOUT" to a clearing account with no VAT.
Bank statement line
A single row on a bank statement representing one debit or credit — such as a BACS receipt, a direct debit, or a card payment — that must be matched to an accounting record before reconciliation is complete.
Cash coding
A bulk-entry method in Xero that lets you create and reconcile multiple bank statement lines in a single grid, posting each directly to an account code without first raising a separate invoice or bill.
Chargeback
A chargeback is a forced reversal of a card payment, initiated by the cardholder's bank, that returns funds to the customer and deducts the disputed amount — plus any associated fees — from the merchant's next settlement.
Chart of accounts
A structured list of every nominal account a business uses to record its financial transactions, organised into categories such as assets, liabilities, income, and expenses, forming the backbone of the general ledger.
Contra entry
A contra entry is a bookkeeping transaction that offsets one balance against another — typically a debt owed to a supplier against a debt owed by that same party as a customer — so that only the net amount changes hands.
Credit note
A credit note is a document issued by a seller to reduce or cancel an amount already invoiced, creating a negative receivable in the seller's accounts and a reduction in the buyer's payable — typically issued after a return, overcharge, or cancellation.
Making Tax Digital
Making Tax Digital is HMRC's programme requiring businesses and individuals to keep digital records and submit tax data to HMRC via compatible software rather than paper returns or manual online forms.
Manual journal
A manual journal is a bookkeeper-created accounting entry that directly adjusts one or more ledger accounts without going through a sales invoice, purchase bill, or bank transaction — used to correct errors, record accruals, or post adjustments at period-end.
Model Context Protocol
An open standard that allows AI assistants to connect to external tools and data sources through a structured interface, enabling the assistant to read from and write to those systems in a controlled, authenticated way.
Month-end close
The structured sequence of bookkeeping and accounting tasks completed at the end of each calendar month — reconciling the bank, posting accruals and prepayments, reviewing aged debtors and creditors, and locking the period — so that management accounts are accurate and trustworthy.
OAuth
OAuth is an open authorisation standard that lets you grant a third-party application access to your accounts — such as Xero — without sharing your password, by issuing a scoped, revocable token instead.
Overpayment
An overpayment arises when a customer pays more than the amount invoiced, or a supplier is paid more than the bill requires. In Xero it is recorded as a distinct transaction type that sits as a credit against the contact until it is either refunded or applied to a future invoice.
Partial payment
A payment that settles only part of an outstanding invoice, leaving a remaining balance still owed by the customer or still due to a supplier. In Xero, partial payments require deliberate allocation so both the cash receipt and the residual debt are recorded correctly.
Payment allocation
The act of linking a cash receipt or payment to the specific invoice or invoices it settles, so that both the bank transaction and the outstanding balance are cleared correctly in the accounts. Unallocated payments leave invoices falsely open and distort aged debtors or creditors.
Payout decomposition
Payout decomposition is the process of breaking a single net payout from a payment processor — such as Stripe or Shopify Payments — into its constituent parts: gross receipts, processing fees, refunds, and any other deductions, so that each component can be posted to the correct nominal account in Xero.
Prepayment
A prepayment is an amount paid in advance for a good or service that has not yet been delivered, recognised as an asset on the balance sheet until the underlying benefit is consumed and the cost is released to the profit and loss account.
Processing fees
Processing fees are the charges levied by a payment processor — such as Stripe or PayPal — for handling card transactions, deducted from gross receipts before funds are settled to your bank account and requiring separate recording in Xero as an expense rather than a reduction of income.
Profit and loss
A financial report that shows your business's income, direct costs, and operating expenses over a set period, resulting in a net profit or net loss figure. It answers the question of whether the business made or lost money in that period.
Split transaction
A single bank statement line coded to two or more nominal accounts, cost centres, or VAT rates within one bookkeeping entry, so that the full amount clears the line while the underlying spend is correctly distributed across the books.
Stripe payout
A Stripe payout is the net transfer Stripe sends to your business bank account, representing the gross value of card receipts in a settlement period minus Stripe's processing fees, refunds, and any chargeback amounts already deducted.
Suspense account
A suspense account is a temporary holding account used to park a transaction when it cannot immediately be allocated to the correct nominal code — keeping the books in balance while the right treatment is worked out.
Tax point
The tax point is the date on which a VAT liability arises for a UK transaction — either when goods are delivered or services are performed (basic tax point) or when an invoice is raised or payment received, whichever comes first (actual tax point).
Trial balance
A summary report listing every account in the general ledger alongside its debit or credit balance at a given date, used to confirm that total debits equal total credits before producing financial statements.
VAT
Value Added Tax is a consumption tax charged at each stage of the supply chain and collected by VAT-registered UK businesses on behalf of HMRC. Standard rate is 20%, with reduced and zero rates applying to specific goods and services.
VAT return
A periodic report submitted to HMRC that summarises the VAT a business has charged on sales (output tax) and paid on purchases (input tax), with the difference either payable to HMRC or reclaimable from them.