Inventory management plays a crucial role in maintaining accurate financial records, controlling stock levels, and supporting informed business decisions. Xero offers two primary ways to manage products and services within its system: tracked items and untracked items.
Understanding the difference between these two item types is essential for setting up Xero correctly and avoiding reporting or reconciliation issues.
What Are Tracked Items in Xero?
Tracked items are products that Xero actively monitors for both quantity and value. When you enable tracking for an item, Xero records how many units you have on hand and calculate the inventory value based on purchase and sales transactions.
Tracked items are typically used for physical products that your business buys, holds in stock, and sells. Each time you purchase or sell a tracked item, Xero automatically updates stock levels and posts accounting entries to inventory asset and cost of goods sold (COGS) accounts.
Key Features of Tracked Items
1. Real-time stock levels:
Xero adjusts quantities as items are purchased and sold.
2. Inventory valuation:
The system calculates the value of inventory on hand.
3. COGS tracking:
When an item is sold, Xero records the cost of goods sold automatically.
4. Inventory reporting:
Tracked items appear in inventory reports such as item summaries and valuation reports.
Tracked items provide better visibility into stock movement and are essential for businesses that need accurate inventory and financial reporting.
What Are Untracked Items in Xero?
Untracked items are products or services that Xero does not track by quantity or value. These items are mainly used for services, non-stock items, or goods that do not require inventory control.
When you use untracked items, Xero records revenue and expenses but does not adjust inventory levels or inventory asset accounts. There is no stock quantity associated with these items, making them simpler to manage.
Key Features of Untracked Items
1. No stock quantity tracking:
Xero does not monitor how many units are available.
2. Simpler accounting:
Transactions post directly to income or expense accounts.
3. Ideal for services:
Suitable for consulting, labor, subscriptions, or fees.
4. No inventory valuation:
Untracked items do not affect inventory reports.
Untracked items are useful when inventory accuracy is not required or when managing items that are consumed immediately rather than stored.
Key Differences Between Tracked and Untracked Items
The main difference lies in how Xero treats inventory and accounting entries. Tracked items affect inventory asset accounts, stock quantities, and COGS, while untracked items affect only income or expense accounts.
Tracked items require more setup, including opening balances and correct account mapping. Untracked items are faster to configure and involve fewer accounting controls.
Conclusion
Selecting between tracked and untracked items depends on your business model, reporting needs, and operational complexity. For businesses handling physical stock, tracked items offer greater control and accuracy. For services or non-stock sales, untracked items provide simplicity and efficiency.
Understanding and applying the correct item type in Xero ensures cleaner financial records, better decision-making, and fewer accounting problems as your business grows.
