Inventory are things/materials that a business holds temporarily and then can be sold. For example, if you’re a computer shop, the computers that you have on hand is your inventory that will be sold to customers later on. You need to record the stuff that you have on hand because that’s of value to your business and if you didn’t have records and they stock was being stolen/lost/damage - how could you quantify the economic loss? Inventory is important and it’s important to record it.

This guide will explain how to set up inventory management in Xero.

1. Collect information about your inventory and have it ready on hand to input into Xero. The information you’d need would be the inventory item, description, cost of purchasing the item and sales price.
2. Go to Accounts > Inventory
3. Click “+ New” item and fill in the details (see picture below where I’ve filled out inventory details for cat food) - you can see that I’ve created a description and put in my cost price and sales price. I’ve also selected tracked inventory. This basically means that Xero will keep count of how many units of inventory I have on hand. Select this if you want this. For more information on tracked inventory go to the guidance from Xero.

4. Once you’ve filled in your details click “Save”. Now you have an inventory item recorded where you can add to (increase the amount), and see (decrease the amount of inventory held).
5. To add to your inventory balance, you create a purchase (go to Accounts > Purchases) and create a purchase invoice selecting your inventory item.
6. To sell an inventory item, create a sales invoice (go to Accounts > Sales) and select the inventory item you’re going to sell. When you save your invoice, your inventory balance for this item will be updated (e.g. if you have 12 units of cat food in stock and you sell 11, then your updated inventory balance will be 1).
7. Even if you’re making a quote in Xero, you can also commit your inventory (select the item) so that if the quote proceeds, you’ve reserved your inventory for that customer.
8. To manage/edit or to get an overview of the inventory that you have, go to Accounts > Inventory.