Tracked inventory

Use tracked inventory to manage and count your inventory items. Tracked inventory also automatically updates your inventory accounting records.

To access Inventory, go to Accounts, then select Inventory.

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.

What is tracked inventory?

With tracked inventory, Xero keeps a count of your inventory items and updates the count for items purchased and sold. Xero also calculates the value of items on hand and updates your accounting records.

With tracked inventory, your organization can:

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

Important information you need to know about tracked inventory

Before you get started with tracked inventory, make sure you understand the following information.

  • Tracked inventory is not suitable if your organization has negative inventory

    If your organization sells inventory items before it purchases them, for example because you pre-sell items or operate a just in time ordering system, use untracked inventory or consider using an inventory connected app. Xero won't let you have a negative inventory balance.

  • You can only import opening balances for up to 4000 items

    If you have more than 4000 items you want to track, you'll need to add opening balances individually for each extra item using an inventory adjustment. You may want to consider instead using one of Xero's app partners for inventory.

    App marketplace (xero.com website)

  • Once an item is marked as tracked, Xero updates its quantity and value on hand when a transaction is approved, not as at the transaction date

    For this reason, before you convert an untracked item to a tracked item, make sure you've entered and approved in Xero all transactions dated before the inventory tracking start date which use your item. Transactions that affect a tracked item's quantity and value on hand are invoices, bills, credit notes, spend money and receive money transactions.

    How can I enter a tracked inventory transaction dated before my tracking start date?

  • You can only convert a tracked item to an untracked item in some situations

    Troubleshooting for inventory

How does Xero value tracked inventory?

Xero uses the average cost method to value tracked inventory items. This is calculated as:

Item value = (opening balance value + purchases value - cost of goods sold value) / quantity on hand

What is included in purchases value?

Purchases value includes the cost of items in:

  • Bills with the status Awaiting Payment and Paid (that is, approved bills)

  • Spend money transactions

What is included in cost of goods sold value?

Cost of goods sold value includes the cost of items in:

  • Invoices with the status Awaiting Payment and Paid (that is, approved invoices)

  • Receive money transactions

How does Xero account for inventory?

Is tracked inventory suitable for your organization?

Xero's tracked inventory is not suitable for your organizations if you:

  • Have more than 4000 inventory items you want to track.
  • Operate with negative inventory. That is, you sell goods before you've purchased them. Xero won't allow you to have negative inventory.
  • Manufacture goods for sale.
  • Require purchase order receipting.
  • Need to use a different inventory accounting method than average cost. For example, FIFO (first in, first out) or LIFO (last in, first out).

If Xero's tracked inventory is not right for your organization, check out our inventory app solutions.

App marketplace (xero.com website)