What's the difference between a component and a Xero account

 

If you have spent some time in Brixx already, you’ll know that your plan consists of components organised into groups and sections. This is your model, used to create forecasts and explore scenarios.

If you’ve come from Xero, you’ll see that your plan has been set up with components named after accounts in your Xero chart of accounts.

A fair question would be:

“Does that mean a Xero account = a Brixx component?”

The answer is important to understanding how Brixx works and how you can make the most of your Brixx plan.

 

Yes & No! - Revenue Example

Let’s say you have Xero revenue accounts called:

  • 200 Tables
  • 201 Chairs
  • 202 Cabinets

You’ll have equivalent income components called Tables, Chairs and Cabinets.

This is a completely correct and valid use of income components to model business sales from different product or service categories. In fact, the income component will have a dropdown control for picking the right Xero revenue account to match to.

So in that way, the answer is “yes”. Use income components to represent your revenue accounts.

However, this is only half the story.

Let’s say that you allow your customers to pay within 3 months of buying one of your tables.

When you forecast this in your income component, you could enter the average delay between purchase and payment as 1 month (or split it across the 3 months for more accuracy).

Now the accounting for 200 Table sales has become more complex.

The value of tables you’ve sold but not yet received the cash for will sit in another Xero account, Accounts Receivable, over on the balance sheet. This is a different account from the revenue account; 200 Tables.

The Brixx income component also calculates any change in accounts receivable related to the sale of tables from this component.

This is because a component doesn’t specifically represent any one type of account. It is meant to represent a real-world business activity and so will handle all the accounting around that activity.

So, in this way, an income component represents more than just a single revenue account.

In the case of selling tables, there will likely be Sales Tax/VAT/GST involved too. Again, in Xero, there are other accounts in your chart of accounts separate from the revenue account for managing this.

In Brixx, your income component will output the relevant tax figures coming from Table sales to the relevant tax accounts.

 

Asset purchase example

This becomes even clearer when you look at another type of business activity. The purchase of assets. Accounting for assets can get quite complex.

Purchasing a vehicle and monitoring its value over time in Xero requires a range of accounts:

  • Balance Sheet Fixed asset account: Purchase and initial value
  • Balance Sheet Fixed asset account: Reduction in value through cumulative depreciation
  • Profit & Loss expense account: Losses from depreciation
  • Profit & Loss expense account: Profit or loss from the sale of an asset

There would also be accounts payable and tax accounts mentioned earlier too. All of these account movements are handled by a single asset component in Brixx.

In a Brixx asset component, you’ll enter information about its purchase price, payment terms, tax, depreciation and disposal methods all in one place. The accounting is then handled behind the scenes resulting in correctly built reports.

It becomes harder to clearly equate the Brixx asset component to any single account in your Xero chart of accounts.

Due to this, you’ll see the option for associating multiple Xero accountants (related to the accounting of assets) to a single Brixx asset component.

 

Benefits and uses of components

Brixx is designed like this to make modelling your business more intuitive. Rather than thinking about accounting, you’re thinking about real business activities.

When it comes to modelling scenarios, you can set up the real-world activity you want to explore rather than having to work out how to account for that activity. Forecasting by directly entering into accounts might limit, slow down or introduce errors into what you’re trying to model.

Overall:

  • Modelling business activities is quicker and easier than trying to model the same activity by directly editing accounts
  • Components that handle all the accounting for an activity make your forecasts less error-prone
  • Since less time is spent on the accounting, more time can be spent modelling scenarios
  • It’s easier for team members without a financial background to understand and use effectively
  • Your model of components gives you more transparency over the entire business
  • Having a picture of all activities makes strategic conversations easier