As part of our continuing coverage of various General Ledgers that might substitute for QuickBooks Pro-plus and Premier-plus Desktop, we are exploring a new functionality being offered by Xero, their 'Inventory Plus' option.
Xero Inventory Options
You really have three different inventory options when using Xero software. The first option is to use Xero Inventory (Products & Services). The second option is to supplement Xero by using a third-party plug-in inventory app, which has numerous inventory apps in the Xero app store. The third option is the relatively new Xero Inventory Plus that went live from Beta just yesterday, August 14, 2024.
This feature will discuss the differences between the first and third options mentioned above. As there are too many inventory apps to incorporate into this feature, we will not compare them as a part of this discussion. They may be the subject of an App Comparison in the future.
Xero Inventory (Products and Services)
Xero Inventory (Products & Services) differs significantly from Xero Inventory Plus. You can think of it this way: Xero Inventory (P&S) is a rudimentary inventory system.
Xero Inventory is suitable for businesses that only sell using invoices and don't operate a point of sale or sell via an eCommerce channel. These businesses can't operate with negative inventory balances because Xero won't allow you to sell an item if you haven't recorded purchases of the item.
Furthermore, these businesses can't track raw materials that require assembly into a finished product. They must sell finished goods they purchase from other sources because they cannot track work-in-progress (work-in-production).
Equally important is that Xero's inventory cost method is a 'weighted average cost' computation model when Xero Inventory (Products & Services) is turned on.
Xero Inventory Plus
Xero Inventory Plus (hereafter referred to as PLUS) is inventory-centric software that expands your Xero functionality to automatically and accurately record accounting entries and provide financial insights into your inventory.
PLUS is suitable for primarily goods-based businesses that sell a point-of-sale system or through eCommerce channels. Typically, businesses of this type fulfilling up to 1,500 orders per month; it's presently not designed to manage orders above this recommendation over the long haul.
PLUS tracks the physical quantities and locations of the products you purchase, stock, and sell to your customers. It provides accurate quantities and values for the products you have on hand and the same information based on the physical locations of your inventory.
PLUS helps you:
- Manage purchase orders
- Fulfill sales orders and customer returns
- Track and manage inventory across multiple locations
- Control sales, inventory (COGS), and shipping across multiple platforms
Inventory is managed in PLUS using purchase and sales orders, but you can manually adjust it if necessary. To help manage inventory levels you can set reorder points and typical reorder quantities.
Purchase Orders are the primary way you acquire inventory in PLUS. Your inventory levels increase when the inventory on a Purchase Order is received in PLUS.
On the other hand, Sales Orders are the primary way you fulfill sales to your customers and decrease your inventory in PLUS. When you fulfill a Sales Order in PLUS, your inventory levels for the item(s) on the Sales Order decrease.
Inventory under management by PLUS can use either the FIFO (First-in, First-out) or the WAC (Weighted Average Cost) valuation method. Even when using the WAC method within PLUS, if you are also using Xero Inventory for some products, you can see irregularities in your accounting data, including possible product duplications. Xero recommends that you do not try to use both the Xero Inventory (Products & Services) and Xero Inventory Plus platforms with the same Xero Organization (file).
With PLUS, you can monitor these key inventory metrics:
- Quantity on hand – Inventory you have in your physical possession.
- Allocated to customers – On-hand inventory sold but not yet delivered.
- Available to sell – On-hand Inventory that hasn't been allocated against Sales Orders. If you've allocated more products on Sales Orders than is available, the status inventory available will report as negative.
- Quantity on order – Inventory on Purchase Orders not yet received.
- Value on hand – The value of your total inventory on hand.
As I mentioned earlier, PLUS allows you to manually adjust your inventory on hand. Those adjustments can only increase or decrease the current inventory level for a specific product. They also adjust the value of your inventory by multiplying the quantity increased or decreased by the unit cost you select (or enter) for each product.
PLUS integrates with your Shopify store to sync products and order details to ensure both platforms are aligned and accurate. When a customer purchases from your Shopify store, a sales order is automatically created and imported into PLUS. You can manually create sales and purchase orders if required. We will discuss using Xero Inventory PLUS with Shopify in a future article.
PLUS is currently only available to Xero business edition organizations based in the United States that are on the Growing or Established Xero pricing plan.
Currently all sales transactions created in PLUS are in United States Dollars (USD) only as foreign currencies currently aren't supported. As long as the Country/region of your Shopify store is set as the United States, all orders, including those in foreign currency, will be imported into PLUS in USD.
On the other hand, Purchase transactions generated in Xero Inventory Plus are supported by Xero’s multi-currency fuctionality.
User roles assigned in Xero determine access within PLUS. The standard or advisor user roles have full access to PLUS, while invoice-only and read-only user roles have no access.
Subscribing to Xero Inventory Plus
Even though you can't access PLUS in a Xero demo company, you can try Plus before fully subscribing. Presently, there are two ways you can try PLUS:
(1) Set up a new Xero Organization for a PLUS trial:
- Set up a new trial Xero organization – PLUS is available in all US Xero trials.
- Once you've set up your Xero trial, click the organization name, then select Inventory Plus.
(2) Try PLUS using your existing Xero Organization:
- If you're an existing Xero customer on a Growing or Established pricing plan, you can add PLUS to your subscription.
- PLUS is free for the first month (Xero Inventory Plus website).
Be aware that activating PLUS begins integrating your Xero organization with inventory level syncing with Shopify. You should only complete this step during the trial onboarding if you intend to continue using PLUS after the trial period.
For this reason, I suggest you avoid linking your Xero Inventory Plus trial and existing Xero Organization subscription with your Shopify account by using option one (1) rather than option two (2) above.
As mentioned earlier, we will cover the integration of Xero Inventory Plus with Shopify in a future article.
If you want to learn more about Xero Inventory Plus, tune in for Insightful Accountant's App Academy on Tuesday, August 27, 2024, at 3:00 PM Eastern.
You can REGISTER HERE for this FREE webinar featuring presentations from Xero and Avalara.
Disclosures
This feature's content has been adapted from Xero in-product and supplemental product support reference materials, including online help. Insightful Accountant's use of Xero source content is published solely for educational purposes.
Xero is a registered trademark of Xero Ltd., a New Zealand-based OTCMKTS (XROLF) traded technology company headquartered in Wellington, New Zealand.
Xero is a global small business platform with 3.95 million subscribers that includes a core accounting solution, payroll, workforce management, expenses, and projects. Xero also has an extensive ecosystem of connected apps and connections to banks and other financial institutions, helping small businesses access a range of solutions from within its open platform to help them run their businesses and manage their finances.
Any other trade names mentioned herein may refer to registered, trademarked, or otherwise be held by their respective owners; they are referenced for informational and educational purposes only.
This is an editorial feature, not sponsored content. The article is provided solely for informational and educational purposes.
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