If Xero says your bank account has a lot more in it than your bank statement does, and you take card payments through Square, the usual cause is your Square payouts being counted twice. Your P&L looks better than the week really was, and your BAS has GST on it you never collected.
Fixing it takes a while, because every payout has to be checked, but the rule for which line to keep is simple.
In any venue’s file, the first number we check is the bank balance in Xero against the real statement. It tells you in ten seconds whether you can trust the sales on your P&L. If several venues share one Xero file, each payout also needs its venue tagged with Xero tracking categories so the sales land in the right column.
What the Square account is meant to do
Square takes the card payment, keeps its fee and pays the rest into your bank in a later payout. A Square connector in Xero copies that in three steps:
- A daily sales invoice for everything you sold, paid into the Square account
- A bill for Square’s fees, paid out of the Square account
- A transfer from the Square account to your real bank for the payout
When the payout lands in your bank feed, you match it to that transfer. Done that way, the Square account only ever holds card takings Square hasn’t paid you yet, and your bank in Xero matches your bank statement. Delivery apps need the same treatment, because Uber Eats GST is on the full menu price, not the smaller payout that lands in your bank.
The payout gets coded as a sale as well
The payout arrives in the bank feed as a deposit from Square. If someone, or Xero itself, codes that deposit as a sale instead of matching it to the transfer, the same money goes into your sales twice: once from the connector’s invoice, once from the bank line.
The transfer has already put the payout into your bank account in Xero, so the coded deposit puts it in a second time. The bank in Xero runs ahead of the real statement by every payout, and the transfers sit there unreconciled.
One file we took over had exactly this. Xero’s own auto-reconcile had been coding each Square payout as a sale with GST for most of a year. Nobody had touched it by hand. The history on each line said the auto-reconcile service had done it, and partly because of it, the bank account in Xero was showing far more money than the bank had.
What it looks like on a $20,000 week
A venue taking $22,000 a week on card, which is $20,000 before GST if every sale is taxable, with $300 of Square fees for the week:
- Connector’s sales invoices: $22,000, so $20,000 of sales and $2,000 of GST
- Square fees bill: $300
- Payout to the bank: $21,700
- The same payout coded again as a sale with GST: another $19,727.27 of sales and $1,972.73 of GST
- What your P&L shows: $39,727.27 of sales for a $20,000 week
- What your bank in Xero shows: another $21,700 ahead of the bank statement every week
Over a 13 week quarter that is $282,100 of payouts, including GST, counted again as sales, and $25,645.45 of GST on your BAS that you never collected. We got those GST figures by dividing the payout by 11, because GST is 10% on most sales and we’ve assumed every sale was taxable.
The weekly P&L is where you would feel it first. Wages look tiny as a percentage, food cost looks brilliant, and the bank balance doesn’t agree with any of it.
Getting the GST back
The ATO lists reporting a GST sale twice as a credit error, which means you paid too much. You can claim it back on a later BAS, as long as you lodge that BAS within the period of review for the one with the error. That period starts the day you lodged and ends 4 years and one day later. There is no cap on how much GST you can correct this way.
We would fix it on a later BAS, not by revising the old one. It is generally easier to correct a GST error on a later BAS than to revise an earlier one. If the BAS with the doubled sales hasn’t been lodged yet, there is nothing to correct with the ATO. Fix the file first and lodge it right.
Don’t delete every Square deposit
Before you delete a deposit coded to sales, check that the connector’s transfer for the same payout is sitting there unmatched.
In the same file, a large share of the Square deposits coded to sales were not doubles at all. The connector had been switched off for months, and those bank lines were the only record of that period’s takings. Deleting them would have wiped out real sales.
So our rule is one deposit out for one unmatched transfer, then we match the bank line to that transfer. Keep the Square payout reports with the file, because you have to keep most business records for 5 years.
What we would do
- Compare your bank’s balance in Xero with the real statement today. If Xero is well ahead, look for unreconciled Square transfers.
- Check the Square account too. Anything more than a few days of card takings, either way, needs a look.
- Turn off any automatic coding of Square deposits, so every payout gets matched to its transfer.
- Pair each sales deposit with its unmatched transfer before deleting anything.
- Put the doubled GST on a later BAS, inside the 4 years and one day.
If we do your books, we reconcile the Square account every week and check it before your weekly report goes out. We do it for every cafe we look after.