Xero Tip of the Month – Inventory

Inventory in Xero

Use inventory in Xero to manage products and services you buy and sell.

There are 3 ways you can use inventory:


1. Untracked Inventory

Simply record the items you buy and sell to speed up data entry when you enter invoices, bills and other transactions. Xero won’t keep a record of the quantity and value of items on hand.

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

  • Only provide services

  • Buy inventory items only when your customers order them.


2. Tracked Inventory

Mark your items as tracked inventory items. Xero will then record the quantity and value of items on hand.

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 organisation’s assets

  • Want Xero to fully account for cost of goods sold.


3. Use a combination of untracked items and tracked items…

You can use both methods for your inventory, if that suits your organisation. 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.


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


An inventory add-on product might be more suitable for your organisation…

For some organisations, an add-on inventory solution is more suitable. You might consider using an add-on if your organisation:

  • Manufactures goods for sale

  • Regularly 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).


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

For further information and assistance with using Inventory in Xero, please contact this office at your convenience.

Janenne Poulter – Client Services Manager