Getting started with tracked inventory

Before you can use tracked inventory, there are some preliminary steps you need to complete. These steps are required to ensure that tracked inventory works correctly for you in Xero.

We recommend you review the information on this page, and the information about adding items and entering opening balances, before you begin entering data in Xero for tracked inventory items.

Talk to your accountant or bookkeeper if you're unsure how to set up tracked inventory for your organization.

The preliminary steps you need to complete are:

Once you've completed these setup steps, you can:

Set up your inventory asset account

Xero uses a special account type called 'Inventory' to manage tracked inventory. Xero will only allow you to select an account with this account type when you create tracked inventory items.
Account types in your chart of accounts

If you used Xero's default chart of accounts when you set up your organization, you may already have an account with the Inventory account type in your chart of accounts.

Image showing default inventory account.

If you don't already have an account in your chart of accounts with the Inventory account type, you will need to create one.
Add an account to your chart of accounts

Xero treats an inventory account as a system account that you cannot journal to. The key benefit of this is that this account can never be out of balance. It will always equal the sum of the tracked inventory items in the account.

Set up your Cost of Goods Sold account

Xero needs to know which account to use to track the cost of goods sold (COGS) for your tracked inventory items. You don't need to use a particular account type for your COGS account.

If you used Xero's default chart of accounts when you set up your organization, you may already have a COGS account in your chart of accounts.

Image showing COGS default account.

If you don't already have a COGS account in your chart of accounts, you will need to create one.
Add an account to your chart of accounts