How to record and track expenses on Xero
Quick Answer
Record expenses in Xero by navigating to Business > Expenses and clicking Add Expense to manually enter details. Alternatively, use bank feeds to automatically import transactions and categorize them as expenses.
Prerequisites
- Active Xero subscription with admin access
- Bank account connected to Xero
- Basic understanding of expense categories
- Supplier/vendor information if applicable
Step-by-Step Instructions
1
Navigate to the Expenses Section
Log into your Xero account and click on Business in the top navigation menu. From the dropdown, select Expenses to access the expense management area where you can view, add, and track all business expenses.
You can also access expenses directly from the dashboard by clicking the Expenses tile if it's visible.
2
Add a New Expense
Click the Add Expense button located in the top right corner of the Expenses page. This will open the expense entry form where you can input all relevant details for your business expense.
Use the mobile app to capture receipts on-the-go by taking photos that automatically sync to your Xero account.
3
Enter Expense Details
Fill in the required fields:
- Contact: Select or add the supplier/vendor
- Description: Enter a clear description of the expense
- Reference: Add invoice number or receipt reference
- Date: Set the expense date
- Amount: Enter the total expense amount including tax
Always include detailed descriptions and attach receipts for better expense tracking and tax compliance.
4
Categorize the Expense
In the Account dropdown, select the appropriate expense category such as Office Supplies, Travel, or Professional Services. Choose the correct Tax Rate from the dropdown menu. If tracking projects, assign the expense to a specific Tracking Category.
Set up custom tracking categories under Settings > General Settings > Tracking to monitor expenses by department, project, or location.
5
Choose Payment Method
Select how the expense was paid:
- Paid by: Choose the bank account if paid directly by the business
- Paid by contact: Select if the supplier will be paid later (creates a bill)
- Paid with personal funds: Choose if you paid personally and need reimbursement
Use 'Paid with personal funds' for employee expense claims that require reimbursement approval.
6
Save and Submit the Expense
Review all entered information for accuracy, then click Save to record the expense. If your organization has approval workflows enabled, click Submit for Approval instead. The expense will now appear in your expense list and relevant financial reports.
Draft expenses can be saved and completed later by clicking 'Save as Draft' if you're missing information.
7
Use Bank Feeds for Automatic Expense Tracking
Go to Accounting > Bank accounts and select your connected bank account. Review imported transactions and click OK next to expense transactions. Choose the appropriate expense account and add descriptions. Click OK to confirm and categorize the expense automatically.
Set up bank rules under Settings > Bank accounts > Manage bank rules to automatically categorize recurring expenses from the same suppliers.
8
Monitor Expenses with Reports
Access expense reports by clicking Reports in the top menu, then select Expense Claims Summary or Profit and Loss to view expense breakdowns. Use the Expenses dashboard to track spending patterns, pending approvals, and expense trends over time.
Schedule automated expense reports to be emailed monthly to key stakeholders for better financial oversight.
Common Issues & Troubleshooting
Cannot find the right expense category
Go to Settings > Chart of Accounts and click Add Account to create custom expense categories. Choose 'Expense' as the account type and enter appropriate details.
Receipt image is too large or won't upload
Ensure image files are under 4MB and in JPG, PNG, or PDF format. Use image compression tools or the Xero mobile app which automatically optimizes receipt photos.
Expense appears duplicated in reports
Check if the same expense was entered manually and also matched from bank feeds. Go to the bank reconciliation screen and unmatch the duplicate transaction, then delete the redundant entry.
Tax calculations seem incorrect
Verify the correct tax rate is selected in the expense form. Go to Settings > Tax Rates to check your tax settings match your jurisdiction's requirements and update if necessary.
Prices mentioned in this guide are pulled from current plan data and may change. Always verify on the official Xero website before purchasing.