What type of reporting does Xero use for manual journals by default?

Xero utilizes accrual basis reporting for manual journals by default. This means that when you enter a manual journal, the financial transactions are recorded at the time they are incurred, regardless of when the actual cash transactions occur. Accrual accounting provides a more accurate picture of a company’s financial position because it recognizes revenues and expenses when they are earned or incurred, rather than when cash is exchanged.

This method contrasts with cash basis reporting, which only records transactions when cash changes hands. While cash basis may be simpler, it can distort the financial picture of a business, especially in cases where significant amounts of credit transactions occur.

In summary, the default use of accrual basis reporting in Xero helps ensure that all financial activities are fully accounted for, giving a clearer view of financial health and performance over a specific period. This is particularly important for stakeholders making decisions based on the company's financial reports.