Choose an inventory opening balances date for a new Xero organisation

See how to choose an opening balances date if you're changing from another accounting system, or wanting to backdate setting up tracked inventory.

Scenario 1 - Organisation with inventory, changing to Xero from another accounting system

Jack's Lawnmowers is moving to Xero from another accounting system. Jack wants to use tracked inventory items in Xero for all of his existing inventory. Jack will start using Xero on 1 August.

Jack is going to use Xero's default chart of accounts for his business. The default chart of accounts includes an inventory asset account.

On 1 August, Jack:

  1. Performs an inventory item count.

  2. Sets up a Cost of Goods Sold account.

    Set up your Cost of Goods Sold account

  3. Adds or imports his tracked inventory items.

    Add a tracked inventory item

    Import inventory items into Xero

  4. Enters his conversion balances into Xero. Jack enters his conversion inventory balance into the inventory asset account.

    How to enter your conversion balances

  5. Enters the opening balances for the tracked inventory items, choosing:

    • 1 August as the opening balances date

    • The inventory asset account which holds the conversion inventory balance as the account which holds the value of his inventory.

    Enter opening balances for tracked inventory items

Scenario 2 - Organisation new to Xero, backdates setting up tracked inventory

Lucy's Used Cars moved to Xero from another accounting system on 1 April. Lucy performed an inventory item count just before she moved to Xero. When Lucy entered her conversion balances into Xero, she entered the entire value of her inventory into an account with the account type Current Asset. She set up all her inventory items as untracked items.

On 1 June, Lucy decides she wants to convert all of her inventory items to tracked inventory items with effect from 1 April.

To make sure that Xero records the tracked inventory opening balances and subsequent transactions correctly, on 1 June Lucy:

  1. Sets up an inventory asset account to hold balances for tracked inventory items.

    Set up your inventory asset account

  2. Sets up a Cost of Goods Sold account.

    Set up your Cost of Goods Sold account

  3. Converts all her inventory items to tracked inventory items.

    Convert untracked items to tracked items in inventory

  4. Enters the opening balances for the tracked items, choosing:

    • 1 April as the opening balances date

    • The account with the account type Current Asset which she used for her inventory conversion balance as the account which holds the value of her inventory.

    Enter opening balances for tracked inventory items

  5. Voids all transactions from 1 April to 31 May which use inventory items.

    Delete or void an invoice

    Delete or void a bill

    Delete or void a credit note

  6. Re-enters the voided transactions. Xero updates the tracked items' quantities and values on hand.

Instead of voiding and re-entering transactions, Lucy could enter inventory adjustments to bring her tracked items' quantities and values on hand up to date as at 1 June. However, be aware that Lucy won't be able to trace movements in inventory to particular transactions for this period if she uses this method.

Inventory adjustments