There may be a time when your Ignition Clearing Account needs to be balanced.
If left unchecked, ‘out of balance' errors can cause issues such as;
Overstating income on your Profit & Loss
Paying the incorrect amount of tax (e.g. wrong GST on BAS for Australian businesses)
Age Receivables data is incorrect, and funds have not been collected from the correct client
In this article we’ll run through the reasons why this happens, how to ensure your clearing account is always correct and also share some handy tips to keep you on track.
Video tutorial (10 mins)
Adding the Ignition Clearing Account to your Dashboard Watchlist
The first suggestion is to add the Ignition Clearing account to your Dashboard Watchlist in Xero.
In Xero, click Accounting → Chart of Accounts → Search → type in “Clearing” → Search.
Then, click the account name → tick ‘Show on Dashboard Watchlist’ → Save.
Now that this account is at the forefront of the dashboard, you can keep track of the running balance at a glance every time you log into Xero.
How do ‘out of balances’ occur?
There can be several reasons why this may occur; the most common four examples are:
The disbursals from Ignition still need to be reconciled in Xero’s bank feed. They are shown as uncoded statement lines. It’s important to ensure that you have completed the bank reconciliation (for all deposits) before you review the running balance of the Ignition Clearing account.
The bank transaction in Xero has been incorrectly coded as a ‘receive money’ transaction into a Sales account (and therefore creating inflation in your revenue data).
The bank transaction has been coded to another ‘Sales Invoice’ instead of the Ignition Clearing account. Therefore, you have recorded the sales invoice as paid, where in fact, the funds are still outstanding.
An invoice has yet to be generated from Ignition via Xero. You must first locate which client the error may have originated from, where you can then recreate the invoice in your ledger via Ignition.
How to troubleshoot your Ignition Clearing Account
The best place to start searching for the error/s, is to navigate to the Ignition Clearing account which is located on your Xero Dashboard Watchlist.
Click on the running balance total to open the Account Summary report.
Find the month where the first discrepancy occurred, and click on the running balance total.
It’s easier to find the discrepancy by exporting the report into Excel.
Looking at the Debit and Credit column, find the first column that displays a total in the Credit column; this should be a payment received from Ignition.
(Click image to enlarge)
Looking at the example above, total debits are $1424.65 and total credits are $953.03 giving us a variance of $471.62. The running balance shows a variance of $550 after the Ignition payment has been processed (technically, this should be NIL).
We need to find out why there are more invoiced totals than payments received from Ignition.
Knowing that the variance is $550, scroll through the Debit list to see if there is an amount of $550.
In this example, we’re lucky as there is an amount of $550 so it’s a great place to start to see if this invoice actually belongs here.
Note: Please be aware that the $550 variance may relate to several invoices and not just one.
Search in Xero’s bank reconciliation to learn how that transaction was coded.
In the example below, we can see the deposit was from Ignition; however, the payment was coded to another invoice that was also outstanding for $550. Payments from Ignition should be coded to the Ignition Clearing account.
Select Remove & Redo and re-reconcile the transaction coding to the Ignition Clearing account.
This should bring our Ignition Clearing running balance account down to $78.38.
Referring back to the Excel report, search for the next Ignition payment to discover what variances are in the Debit column.
(Click image to enlarge)
In the example above, we can see that there is no debit remaining for that month which concludes that an invoice is missing.
To find which invoice is missing, navigate to your Payments → Disbursals → scroll down to the transaction date of the Ignition payment within your Ignition account (in this example, we would be looking for a payment received on the 31st of December).
Click into the disbursal to display a breakdown.
This page will list all clients and payments related to that disbursal, and it will also display the invoice numbers. From this page, you should quickly and easily identify which client has the missing invoice.
Click on the client name → Invoices tab → find the transaction for $78.38 where an invoice has not been deployed → click into the invoice
Next click on the ellipsis (three vertical dots) which opens an option to create an invoice in Xero.
Create the invoice.
Please note: An invoice will not be created if your Xero ledger has been locked for the period. You will need to unlock it in Xero, and then recreate the invoice via Ignition.
In Xero, you may need to adjust the invoice date to match the payment date.
Once the change has been made, don’t forget to lock the Xero ledger again.
Refresh your Ignition screen, and you should now see the invoice number and your running balance in Xero should now be NIL.