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How to account for Cost Centre joint expenses

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I have two sepearte cost centres in my business for which I'd like to be able to generate completly seperate P&Ls for internal tracking and reporting.

The one issue is that there are obviously some shared costs which need to be accounted for.

To make it easier for myself, I have set it up so that there is a bank account for each cost centre plus an additional one for any joint expenses. Once a month, I deposit an equal amount from the cost centre bank accounts to the joint bank account to cover any shared expenses.

My question is how to set it up in Xero. Ideally, each cost centre would report a totally seperate P&L, but would combine for reporting to tax man, etc. I've got most of the way by setting up 'tracking categories' in Xero which allows things to be nicely sepearted, but I'm trying to avoid a situation where I have to duplicate line items for each joint expense.

Therefore, I'm wondering if it's possible to simply leave any joint expense tracking categories unassigned, and then use a journal entry each month to make the transfers.

Something like: each month, an equal 'Joint Expenses' transaction credits a joint expenses account with the activity specified, and debits the bank account of each cost centre with activity also specified. Then, an additional transaction is made to debit the joint expenses account, and credit the joint bank account. 

This would hopefully mean that the consolidated report would have the Joint Expenses account hidden as its credits and debits should balance, whilst the reports broken down by category should show Joint Expenses.

Does this make sense? Is there a better way?

Replies (8)

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Scalloway Castle
By scalloway
19th May 2021 08:36

If you are unable to allocate the initial entry for the joint expenses straight off then I would use Journals to allocate them.

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By tom123
19th May 2021 08:51

Not Xero specific, but, if I have apportionments, I usually have one account which contains the actual expense, then two further accounts for respective debits and credits for the apportionments.

I try not to 'muddy' an account with transactions in it (from source documents etc) with a load of allocations.

Not always possible, but it helps.

However, if this is your business, you are free to choose whatever method.

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By tltodman
19th May 2021 10:45

Think I'd probably have a 3rd category for the joint costs and then journal the total each month 2 ways into the other cost centres in whatever the agreed split is. Or just enter each joint cost 2 ways to both cost centres when you enter it

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By paulhammett
19th May 2021 16:34

No need for separate bank accounts. Journals are your friend.

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By paulhammett
19th May 2021 16:49

.

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By Dots
19th May 2021 17:11

Thank you for the feedback guys. I think I'll just stick to entering each joint cost two ways. Shame there isn't a way for Xero to do this natively. However, there aren't too many joint transactions and setting 0.5 on the quantity isn't too difficult – but I would have expected Xero to at least have a way of duplicating line items!

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By Halex
20th May 2021 20:57

Have you tried using bank rules in Xero? You can specify the percentage split. If every payment is coming from the joint account it will automatically generate the account entries you need. Doesn't get you round the having two transaction lines - the alternative to that is totaling the costs and using one journal entry each month. I made extensive use of bank rules when I set up Xero for a charity, to make sure income and regular transactions are posted correctly between tracking categories. Copy invoice function in Xero also makes it very quick and consistent if you use bills rather than spend transactions. I used to use Receiptbank and wanted to use Hubdoc, but the bookkeeper is not persuaded it is any quicker than copy last invoice.

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Replying to Halex:
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By Dots
21st May 2021 10:20

Bank rules look really handy, unfortunately for us however our joint costs tend to be billed.

It would be nice if Xero allowed you to split a bill into tracking categories by percentage/amount, as I'm not too keen on having duplicated bills in the system. I'd rather keep it at line item level so that it's all grouped with attached documents, etc.

I'd even be happy with the ability to duplicate a line item. It seems to be a fundamental bit of functionality. But looking at their feature requests tally it looks way down the list. I wonder how much of that is because when people search for 'duplicate line item xero' on google they're taken to articles about de-duplicating bank transactions?

Must be more than 20 Xero customers in the world who would benefit from it.

Xero feature discussion here: https://community.xero.com/business/discussion/14182091

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