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Quickbooks Online vs Xero: A Deep Dive

Seth David

Seth David

Chief Nerd and President at Nerd Enterprises, Inc.
Seth David is the chief nerd and President of Nerd Enterprises, Inc. which provides consulting and training services in Accounting and productivity based software. Consulting services range from basic bookkeeping to CFO-level services such as financial modeling.
Seth David

It’s no secret that Intuit’s QuickBooks has dominated the accounting software market for the better part of two decades. In fact, 2015 estimates put the company at 80%-90% market share serving over 29 million businesses in North America alone.

For the past few years, however, competition in the field of cloud-based accounting software has been heating up. While Quickbooks is definitely in the lead, one competitor, in particular, also has its fair share of users. That company is New Zealand-based Xero.

Xero was launched in 2006 and initially marketed specifically toward the Australasian market. However, as of this writing, Xero now boasts over 1 million subscribers in more than 100 countries.

The Differences: QuickBooks Online vs. Xero

While QuickBooks touts reliability and market penetration, Xero is known for a simple user interface and an aggressive development schedule. As the competition heats up, customers reap the benefits of new features and faster development times.

Before I dive into this comparison, I have to be brutally honest. I’m biased toward QuickBooks. That’s because, after years of experimenting with both platforms, I’ve decided that I need to stick with one product to help streamline my workflow, and QuickBooks better suits my needs and the needs of my specific client base.

Below, and despite my admitted bias, I hope to objectively demonstrate why I made my choice.

For my comparison, I will take a look at the following features side by side: bank feeds, entering transactions for revenues and expenses, and reporting.

Bank Feeds

In either application, this will be the critical area from which most of the bookkeeping is done. I’ve recently heard of some people whose clients wanted to use QuickBooks Online but didn’t want to use the bank feeds. This is sort of like saying, “I want to buy a car without a steering wheel.” It makes no sense.

Both applications have a good bank feed system; however, the two look very different.

quickbooks-online-vs-xero

quickbooks-online-vs-xeroWith such different layouts, some users will automatically like one over the other, and some won’t care either way. The bottom line for me as the accountant on this is whether or not it gets the job done.

On the surface, both do the job and do it well. Since this is a deep dive, let’s take a closer look under the hood.

As you can see, both applications show you clearly where a downloaded transaction appears to be a match to something that is already recorded on the books. You can either confirm or deny these. If you deny, each application has a way of letting you either add a new transaction into the accounting software or look for another match. And both applications handle looking for another match just as well.

But let’s say you need to add a new account because this is the first time you’ve paid for this product or service. This is where QBO (QuickBooks Online) wins.

With QuickBooks Online, you simply add a new account right from the online banking dialogue in the Account drop-down.

With Xero, at the outset, it appears this option isn’t there. You have to go back out to the chart of accounts, add the account, then come back and add the transaction from online banking.

There is a way, actually, but it’s not obvious, and I personally don’t understand the logic behind their approach. A few years back, I even asked someone at Xero why this was the case when I was working on a major cleanup job for a client. The Xero rep didn’t know why either. I checked as I was writing this, and this issue has not been remedied to date. Watch the video to see what I mean.

All in all, the bank feeds are about equal to me. The adding account issue by itself would not sway me away from Xero, but it does cause friction within the platform. It slows me down, and as an extreme cloud accountant, I need to move at lightning speed. Anything that slows me down, no matter how insignificant it may seem, is a problem.

A Big Problem

Here’s the bigger problem I have with how Xero handles bank feeds.

When you link up your account to download transactions from your bank, you have to set up the right starting balance per the bank. From that point, your balance per bank is a calculated balance. That calculated balance can be manipulated, which means it can be wrong. This is a big issue for me. The bank balance should be pulled from the bank. Period.

From an audit standpoint, this is a potential nightmare. No user should ever have the ability to do anything in the accounting software to alter what the “bank balance per the bank” is. I see no upside to this, and a ton of risk. My question to my friends at Xero is, “Why?’ Help me see why this is useful. No other cloud accounting app has this deficiency. Not QuickBooks Online, not Wave, not Zoho Books, none of them.

I demonstrate and prove what I am saying here in the video above.

Entering Transactions

When it comes to entering transactions, QuickBooks Online and Xero both have a plus sign at the top of the menu navigation. From there you can create any kind of transaction you want. There is a universal Quick Create option so that from anywhere you can quickly get in and post something, whether it’s an invoice you just remembered you never sent, or an Amazon purchase you just made online.

In Xero, you click on the Accounts menu at the top, and from there, you can get into any specific area that you would want to focus on, such as Sales, or Expenses, or any other kind of outflow, like Inventory Purchases. From these areas, it is very easy to open a new transaction and get it entered.

Go to the Sales area, and you can enter and manage all sales transactions from here.

In both applications, you can set up your products and services, and map them to the appropriate accounts in your chart of accounts. For example, I might have my “Bookkeeping Services” mapped to my “Accounting Services” income account. Then I would have my “CFO Services” also mapped to my accounting services income account. This lets me keep the details out of my chart of accounts, which makes it easier to read my profit and loss (P&L) when I am running reports.

A Split Decision

One thing I like about Xero is when you are entering transactions that involve a product or service that you offer, even though you have the product or service mapped to an income account, you can change it to any account while you’re in the transaction. This provides a certain flexibility that QuickBooks Online doesn’t offer. On the other side, this could completely upset the consistency and reliability of the very purpose of the mapping. So it’s a “handle with care” kind of flexibility.

In QuickBooks Online, you have the left-hand navigation where it’s pretty straightforward where to go. Click Sales to enter customer and revenue related transactions. Intuit has recently re-organized this a bit so that it’s very easy to move from All Sales to Invoices, Customers, and your Products and Services list. It’s very easy to access this all from one area.

In the Expenses area, you can easily access the expense transactions, and your vendor list in the top navigation.

When entering a transaction, you have an area for entering things directly by account and an area for entering by item (products and services). As I mentioned before, you are somewhat locked into how your items are mapped. You can change the mapping from the products and services list. When you do, you will get a choice to update past transactions. If you don’t choose to do that, the new mapping will only affect new transactions.

I would say that both QuickBooks Online and Xero offer a great platform for getting your transactions entered. They each have a very different interface but get the job done, and both make it easy to do.

Reporting

Reporting, specifically, is almost entirely why I chose QuickBooks Online vs. Xero.

Both QuickBooks Online and Xero have a complete set of standard reports.

There is one core accounting report in Xero that drives me crazy. For the longest time, Xero didn’t even have it. When Xero finally introduced the statement of cash flows and I looked at it, I barely recognized it. I actually had to go back and research it. I had forgotten from my college days that there were actually two methods of preparing the statement of cash flows: direct and indirect.

I had not seen the direct method since my college days. But there it was in Xero. Staring at me. Mocking me. I tried looking at it from the perspective that maybe this was better. I do know how to keep an open mind, especially as someone who is constantly testing out software, and looking for the better, faster way. The direct method for creating a cash flow statement, however, did not prove to be the better way.

Now, if you’re a business owner who just wants to keep the books for a business, then you probably have no idea what I am talking about, and I’m equally certain you wouldn’t care. That is until you decided to hire someone like me—an outsourced CFO. And you do that because you want the strategic analysis and guidance. You want to take your books beyond compiling a tax return once a year, and you want to analyze the information.

In short, the indirect method of preparing a cash flow statement gives us a reconciliation from accrual basis net income to cash in the bank. So you file on a cash basis? You can’t run a business that way. Cash basis filers are still accrual basis businesses. Bottom line, this format explains the classic question business owners ask, “I made $X but how come I don’t have that in the bank?”

But that’s not all.

When it comes to customizing reports, my opinion is that QuickBooks Online is leaps and bounds ahead of Xero. Here’s why.

The Winner: QuickBooks Online

To get a monthly P&L or balance sheet in QuickBooks Online, I simply run the report for the date range, and then in the options right in the top region, I can choose to show the columns by month.

To do this in Xero, I need to run it for the last month in the period, and then choose to compare with the previous 11 months. It’s just not straightforward.

Next, the layout on the monthly reports in Xero goes from left to right, most recent month to oldest. This is backward. When I want to dump this into a spreadsheet so I can analyze and project, I need to reverse the order of the columns. Not an easy task. This has been a problem from the beginning and it still is today.

Now let’s say I want to get a detail report on accounts receivable or accounts payable.

In Xero, I have no ability to total those details by customer, or vendor. There just isn’t a way to do it. In QBO, this is a tweak that takes two seconds.

In short, Xero has very limited customization options. They’ve recently attempted to enhance their reporting, but, in my opinion, it still falls short. They’ve added some cool functionality, but by and large, these are features I don’t really need or care about—like grouping accounts in a section on a P&L.

Another report I frequently run is an “uncleared transactions” report. This is an easy tweak in QuickBooks Online. In Xero, there is simply no way to run it. Not in the reports area. You would have to go to banking (bank feeds), then to the account transactions. This is the closest thing Xero has to an account register. Then you can sort by reconciled status, or use the search feature on this section. So you can do it, but it’s a long way to go to get there, and it’s not a report that can be exported and sent to a client. I do this frequently because clients often don’t understand why their balance is so much lower than what’s in the bank.

In the video above I show you how easy it is to customize reports in QuickBooks Online, and how limited Xero is in this area.

The reports are the most important thing to me. The whole accounting system is useless if I can’t get good information out of the system. This is why I chose QuickBooks Online as the accounting product for Nerd Enterprises, Inc. consulting clients.

***

As a small business owner, you’re super busy. The last thing you need is a clunky accounting software solution that doesn’t fit your needs. I hope this comparison has helped illustrate the differences between Quickbooks vs. Xero and assisted you in identifying which platform is better for your business. For a deeper dive into a comparison between Quickbooks vs. Xero, watch the video above.  

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Seth David

Seth David

Chief Nerd and President at Nerd Enterprises, Inc.
Seth David is the chief nerd and President of Nerd Enterprises, Inc. which provides consulting and training services in Accounting and productivity based software. Consulting services range from basic bookkeeping to CFO-level services such as financial modeling.
Seth David

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