Options for managing inventory in Xero

You can manage inventory in Xero in 2 separate ways, or use a combination of both ways. You can track inventory items, leave them untracked, or use both methods.

Alternatively, for some organizations an inventory app might be more appropriate. For example, an organization which manufactures goods, sells goods before it purchases them, or has other specialized inventory needs.

Xero won't permit your organization to have negative inventory. Talk to your advisor if you're unsure which method is right for your organization.

2 ways to manage inventory

You can choose one of the 2 options for managing inventory, or a combination of both options. The options are:

Untracked inventory items

Untracked items are goods or services you can specify on transactions such as sales invoices, bills, quotes and purchase orders. Xero does not track quantities on hand or total value.

Tracked inventory items

Tracked items are goods where Xero tracks quantities on hand and total value.

Tracked inventory is not related to tracking categories. Tracking categories are used to review and compare different areas of your organization.

Set up tracking categories to monitor different areas of your business

When would you use untracked items?

Use untracked items when you don't need Xero to manage and account for inventory. For example, your organization might:

  • Only provide services
  • Buy inventory items only when your customers order them.

When would you use tracked items?

Use tracked items when you want Xero to manage and account for inventory. For example, you might:

  • Keep quantities of items on hand and buy and sell them regularly
  • Want to closely track inventory because it represents a high proportion of your organization's assets
  • Want Xero to fully account for cost of goods sold.

When would you use a combination of untracked items and tracked items?

You can use both methods for your inventory, if that suits your organization. For some types of inventory (for example, services you provide), you can use untracked items. For other types of inventory (for example, goods you keep on hand and regularly buy and sell), you can use tracked items.

Can you change the method?

You can convert an untracked item into a tracked item, meaning that you change from not tracking quantities and balances to Xero now tracking those values. You may need to enter an opening balance when you make the change.

Convert untracked items to tracked items in inventory

You can change a tracked item to an untracked item under certain conditions.

Troubleshooting for inventory

When would an inventory app be more suitable for your organization?

For some organizations, an app inventory solution is more suitable. You might consider using an app if your organization:

  • Has more than 4000 inventory items you want to track.
  • Wants to use periodic inventory. That is, you only update your inventory at month end or year end, using inventory adjustments to update your inventory records.
  • Manufactures goods for sale.
  • Operates with negative inventory, that is, you sell goods before you've purchased them.
  • Requires purchase order receipting.
  • Needs to use a different inventory accounting method than average cost, for example, FIFO (first in, first out) or LIFO (last in, first out).

Check out the inventory app solutions available to use with Xero.

App marketplace (xero.com website)