Xero tracking categories: set-up, limits and reports

The short answer: tracking categories are Xero's tags for splitting your figures by something other than the account — a site, a department, a region. Set them up under Accounting → Accounting settings → Tracking categories. You can have four, but only two can be active at once, and Xero recommends no more than 100 options in each. Tag every transaction with an option, then run the profit and loss with a column for each option to see how each part of the business is doing.

The rest of this guide is how to set them up so the reports can be trusted, and the mistakes that make them wrong.

What are tracking categories in Xero?

Tracking categories are labels you add to transactions in Xero so you can report on one part of the business. Xero uses them instead of department codes or cost centres.

Each category has options. A category called Site might have the options Fernhill and Harbourside. One called Department might have Kitchen, Bar and Front of house. Every line on a bill or invoice can carry one option from each active category.

Tracking category examples

• Site or location — the most common, for a business trading from several places under one company.
• Department — kitchen, bar and front of house; or sales, operations and admin.
• Region or brand — for a business that reports by area or by concept.

Tracking category limits

• Four categories in total, two active. Any others have to be archived.
• About 100 options per category. Xero recommends no more than 100 so reports load quickly.
• One option per category on each line. A line can be Fernhill and Kitchen, but not Fernhill and Harbourside. If a cost is shared, split it into two lines.
• Not for job costing. Xero says tracking is not designed for it and points to Xero Projects instead.

Two active categories is the limit people hit first. If you want site, department and brand, you have to choose two — usually site and department, with brand read from the site.

How to set up tracking categories in Xero

1. In the Accounting menu, select Accounting settings.
2. Click Tracking categories.
3. Click Add Tracking Category.
4. Enter the name of the category, such as Site.
5. Under Category options, add one option for each site.
6. Click Save.

Agree the names before anyone starts tagging. Renaming an option later updates every transaction and report, so a rename is safe. Two options for the same site under slightly different names is not.

How to add tracking to transactions

You can add tracking to every type of transaction in Xero — invoices, bills, credit notes, bank transactions and manual journals — and to contacts and payroll employees. On the transaction, pick an option under each tracking category.

Default tracking on contacts

Set a default tracking option on a contact and Xero fills it in on new transactions for that contact. That is useful for a supplier who only ever delivers to one site. It is wrong for a supplier who delivers to every site, because the default quietly puts all their bills on one.

Tracking payroll

Wages are one of the biggest costs in a restaurant, so track them too:

1. In the Payroll menu, select Payroll settings.
2. On the Organisation tab, under Payroll Tracking, choose a tracking category for Employee Groups.
3. Open each employee, go to Employment information, and choose their site under Employee group.

Their salary and wages are then tracked on every pay run. For staff who work across sites, use Timesheet Categories instead, which split the hours on each timesheet across options. If you use both, each needs a different tracking category.

Tracking category reports

• Profit and loss by option. In the report settings, compare tracking categories to get a column for each option — sales, costs and profit for each site side by side.
• Tracking Summary. The activity for each option, for one account type, over a period.
• Other reports, filtered. Most reports can be filtered by tracking, including Account Transactions, which is the quickest way to see what has been tagged where.
• Balance sheet. It can be filtered by tracking too. Xero uses a Tracking Transfers account to keep it balanced.
• Budgets. Set a budget for each option and compare the actual figures against it.

A worked example

Fernhill Restaurants Ltd, a fictional company, runs two restaurants: Fernhill and Harbourside. It has one tracking category, Site, with an option for each. This is its September profit and loss with a column per site. Figures are in pounds, before VAT.

On this report Harbourside's food gross profit is 69.8%, almost level with Fernhill. It is not. £1,320 of Harbourside's food bills were never tagged, so they sit in Unassigned. Tag them and Harbourside drops to 67.0% — three points behind Fernhill, which is the conversation its manager should be having.

The Unassigned column should be zero every month. Check it before anyone reads the report.

Common mistakes

• Lines left untagged. Anything without an option lands in Unassigned, and every site's figures are wrong by that much. Fix them in bulk with Find and recode, which needs the administrator role.
• Tracking what the accounts already show. If food and drink purchases are separate accounts, you do not need a Department category to split the kitchen from the bar — the accounts already do it. Keep tracking for what accounts cannot show, like which site.
• A default on a supplier who delivers everywhere. Every bill lands on one site until someone notices.
• Two options for one site. "Harbourside" and "Harbour side" split one site's figures in two. Recode one into the other, then archive it.
• Expecting to delete a used option. You can only delete an option nobody has used. A used option is archived instead, and stays on old transactions and in reports.
• Tracking added to a fixed asset after depreciation has run. The old depreciation journals do not pick it up. Roll back depreciation and run it again.

Tracking categories or separate Xero organisations?

Tracking categories split one company's figures. They cannot see across companies.

• Several sites in one limited company: one Xero organisation, with a Site tracking category.
• Each site its own limited company: each needs its own Xero organisation, because each is a separate company with its own accounts. Tracking cannot combine them. You need a consolidation tool, or a group view on top of the separate files.

Doing it faster

Tracking is only as good as the tagging, and the tagging is usually done in finance, weeks later, by someone working out which site a bill belongs to.

FINIO reads every line of every supplier invoice and codes it, so each site's spend by supplier and category is there the same day, and site managers who enter their sales see gross profit while the month is still running. For groups where each site is its own company, finance and directors see every company's spend in one view — the part that tracking categories inside one Xero file cannot do.

Questions

How many tracking categories can you have in Xero?

Four in total, but only two can be active at once. Xero recommends no more than 100 options in each category so reports load quickly.

Where are tracking categories in Xero?

In the Accounting menu, select Accounting settings, then Tracking categories. That is where you add, rename, archive and restore them.

Can you use tracking categories for payroll in Xero?

Yes. In Payroll settings, choose a tracking category for employee groups, timesheet categories or both, then put each employee in a group. Their wages are then tracked on every pay run.

What is the difference between tracking categories and projects in Xero?

Tracking categories split your ongoing figures by site, department or region. Xero Projects is for job costing — the time and costs of individual jobs — which Xero says tracking is not designed for.

Can you delete a tracking option in Xero?

Only if it has never been used. An option used on a transaction is archived instead. It stays on old transactions and in reports, and can be restored later.

Can you add tracking to transactions already entered?

Yes. Edit each transaction and choose the option, or use Find and recode to change many at once if you have the administrator role.