Why we recommend leaving inventory untracked in Xero

There's a step in every Workhorse implementation where we ask the customer to open Products & Services in Xero and set their tracked items to untracked. It's often queried, usually by the bookkeeper.

It's a reasonable question. Tracked inventory is the part of Xero that keeps a stock figure on the balance sheet and posts cost of goods sold each time an item is invoiced. Switching it off sounds like giving that up. What we're actually proposing is a different division of work between the two systems.

Two stock records can't be kept in step

The difficulty with leaving items tracked once an operational system is running is that the two systems move stock at different moments. Xero moves stock on financial events: quantity on hand goes up when a supplier's bill is entered, and down when a sales invoice is raised. Workhorse moves stock on physical events: goods-in, dispatch, adjustment, production.

Between a delivery arriving and its bill being entered, the two figures disagree. Each is right on its own terms. If both systems track stock, someone has to reconcile them, and the reconciliation never finishes, because the gap between the figures comes from the design of the two systems rather than from any error that can be corrected.

So during implementation, products in Xero are set to unracked. Workhorse becomes the stock record — quantities, locations, batches, values — and Xero keeps the financial record.

What untracking doesn't change

Untracking the items has no effect on the day-to-day flow into the accounts. Invoices and credit notes still post from Workhorse to Xero in real time when they're set to Sent, coded to the accounts chosen at configuration. Purchase orders arrive in Xero as purchase orders or as bills, whichever matches how that Xero is already run, and at the status the bookkeeper has asked for — draft, awaiting approval or awaiting payment. Payment status flows back the other way after reconciliation. Customers and suppliers post across as contacts, and every line uses the Xero tax codes.

The sales, purchasing and tax side of the ledger looks exactly as it did before. What changes is how stock value and cost of goods sold reach the accounts.

One journal a month

With tracked inventory, Xero posts COGS on every invoice at average cost. With items untracked, that posting stops, and it's replaced by a month-end journal: Workhorse values the period's stock movements in a dedicated report, and the bookkeeper posts one journal. Nothing stock-related to touch inXero in between. How our customers actually run that month-end is worth a piece of its own, and I'll write it separately.

There is a trade-off. Between journals, the balance sheet stock figure in Xero is static. For most of our customers this costs nothing — the accounts are reviewed monthly and the month-end figure is right. Where an in-month balance sheet genuinely matters, posting COGS per transaction issupported instead; few choose it, for the volume of postings it creates.

What the bookkeeper ends up with

The version of this that matters to the person doing the accounts: fewer postings, arriving correctly coded at an agreed status, with nothing to re-key and nothing to re-code. No dummy stock movements to interpret. No inventory ledger inside Xero slowly drifting away from what's actually in the warehouse, and no monthly conversation about which figure is right.

None of this is left to the customer to configure alone. The accounts and statuses are agreed during implementation, we watch the first live transactions arrive in Xero, and anything that comes up afterwards goes to the helpdesk.

Where this advice stops

This recommendation applies to businesses running an operational system alongside Xero. It isn't an argument against tracked inventory in general. A business that buys finished goods and sells them as-is, from one location, with orders that ship complete, can run on Xero's tracked inventory for years, and some of the businesses that book a discovery call with us are told exactly that — Xero alone is enough, and adding a system would be a cost with no return.

The advice is only this: once an operational system holds the stock record, don't ask Xero to hold a second one.

The full detail of what posts where — accounts, statuses, and the field mappings record by record — is on our Xero integration page. If you're an accountant or bookkeeper assessing this for a client, we're happy to walk through their Xero setup on a call.

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