This part following from Part 1 - Introduction to Intermediate Guide to Using Xero

What’s inventory?

Inventory is stuff that your business holds for sale. If your business sells computers, the computers that you hold for sale is inventory. Whereas, in the same business, if you have a computer that your receptionist uses to do work on, that computer is a fixed asset. So, inventory is stuff you hold for the purposes for selling.

Xero inventory

In Xero you can choose to track your inventory (perpetual) or you can choose to add inventory directly without Xero keeping count of it (periodic).

Easy Way to Get Started with Inventory in Xero
To set up inventory and manage it with Xero tracking the quantities of your inventory as you sell and buy inventory (easiest way), go to this guide:

• Setting up Inventory using Tracking.

Longer & Manual Way to Get Started with Inventory in Xero
Otherwise, the guide below is if you want to use periodic inventory management and the update the stock quantities when you do a stock update (more manual work).

1. Create a new inventory item.
   1. Go to Accounts > Inventory
   2. Click “+ New Item” & enter item details. Once done, click “Save”.
      • Item code is just a code for your inventory - a good way to name inventory is to use codes that have some meaning e.g. names of supplier.
      • Check the “I purchase this item” & “I sell this item” boxes. Leave the tracking checkbox unchecked.
      • With inventory accounts, you can set specific accounts to track how certain inventory is performing. For example, Apple Computer Sales, Apple Computers Direct Costs and Apple Computers Inventory; Toshiba Computer Sales, Toshiba Computer Direct Costs and Toshiba Computers Inventory.
   3. Continue step 1.1 & 1.2 until you’ve created inventory items for all the inventory types you hold. E.g. if you hold a line of Apple MacBooks 13" then that would be one inventory item you would create and you would record how many of those you would hold on that inventory item. E.g. There are 15 x Apple MacBooks 13" items.
2. Managing Inventory
   1. From time to time, you’ll want a report on how much inventory you had. To access inventory reports, go to Reports > All Reports and select “Inventory Items Summary” to see a summary of your inventory items.
   2. If you need to edit or delete and inventory item, go to Accounts > Inventory and click for the inventory item you want to delete or edit. To edit, click “Edit Item” and make changes and “Save”. To delete click “Delete”.
      Now, move on to Part 3 - Managing Fixed Assets.
      • Note that if you have a repeating bill or repeating invoice with an inventory item that you wish to delete, you’ll have to first remove the item from the repeating bill or invoice and then delete the inventory item.
3. Updating/Adjusting Your Inventory Balance aka, the amount of inventory that you hold.
   1. Once a year, you should do a stocktake - that’s counting how much inventory you have on hand. The results of the stocktake may require you to adjust your inventory quantities. To adjust inventory quantities in Xero:
   2. Record a bill to increase quantities or create an invoice to record a decrease in the number of inventory compared to stocktake amount counted. Use the stocktake date as the date and due date. For the contact name, reference and description, use “Stocktake”. Select the inventory item and the quantity it should increase by. Enter a unit price of 0.00.
   3. If you want to change the $ amount of your total inventory. You’ll need to create a manual journal that DR or DR Inventory and Inventory Direct Cost depending on if you need the value of your inventory to go up or down.

So that concludes managing inventory. Now, move onto Part 3 - Managing Fixed Assets