Xero Tracking Categories: Set Up, Assign and Report on Options

Here's what catches people out. That two-active limit is the real ceiling, not four. The other two slots only hold archived categories, and Xero archives rather than deletes anything you've already used. So if you burn through categories while experimenting, you can end up with no spare slots. Plan your two before you start tagging transactions.

Tracking categories versus tracking options

Xero uses tracking categories and options instead of department codes, cost centres or sub-accounts. The category is the dimension you report on; the options are the values inside it. A category needs at least one option before you can assign tracking to a transaction.

Rule	As of October 2026
Total tracking categories	Four, including archived ones
Active categories at once	Two
Options per category	Multiple; Xero recommends no more than 100 so reports load quickly
Minimum options before tracking	One
What you can track	All transaction types, plus contacts and payroll employees
Job costing	Not what tracking is designed for; Xero points to Xero projects

How to set up a tracking category in Xero

Xero's own example is a business with seven shops that wants sales by shop. The owner creates a category called Location and adds an option for each of the seven shops. As of October 2026, the steps are:

1. In the Accounting menu, select Accounting settings.
2. Click Tracking categories.
3. Click Add Tracking Category.
4. Enter the category name, for example Location.
5. Under Category options, enter each option, for example each shop.
6. Click Save.

Xero suggests creating a budget for each tracking option once it's set up, so you can compare each shop or department against its own target rather than the business as a whole.

Assigning tracking to a transaction

Once your categories exist, any transaction shows them. Click the tracking category on the transaction and pick the option. Xero walks through it on an invoice, with a category called Division and options Corporate and Retail:

1. In the Sales menu, select Invoices.
2. Click New Invoice.
3. Fill out the invoice fields.
4. Under the Division category, select Retail.
5. Save or approve the invoice.

Fixed assets need extra care. You can assign tracking when you create a registered fixed asset or include it in the import file. If you've already run depreciation before adding the option, the depreciation journals won't update. To fix it, roll back depreciation and re-run it, or for book depreciation post a manual journal to add tracking to the expense.

Renaming, deleting, archiving and restoring

Renaming a category or option updates every transaction and report with the new name, which makes it the safest change you can make. Delete is stricter: you can only delete a category or option you haven't used yet. Anything in use is archived instead, and that includes purchase orders with approved or billed status and quotes that are accepted or invoiced.

All of these live under Accounting, then Accounting settings, then Tracking categories. To rename, click Rename next to the category or option. To delete or archive, click the delete icon, then Delete, and Xero decides which happens based on whether it's been used. Archived items move to the Archived tab, and you restore them from there with Restore.

Before you remove an option, take it off every repeating transaction and repeating manual journal. To clear it from past transactions, edit them and remove the tracking. If you have the administrator role, find and recode does that in bulk. Archiving doesn't touch existing transactions: tracking details still show on them, and archived options still appear in reports whose date range covers those transactions.

Restoring has two handy side effects. Restore an option from an archived category and the category comes back automatically. And if that option used to be a contact's default, Xero makes it the default again, as long as you haven't picked another one for that contact in the meantime.

Running the Tracking Summary report

The Tracking Summary report shows activity for each option in a category, for the account types you choose, over a set period. It only counts approved transactions, and purchase orders and quotes are left out. Anything in those account types that wasn't tracked shows as Unassigned, which is the quickest way to find gaps in your tagging.

1. In the Reporting menu, select All reports and open Tracking Summary.
2. Select a date range, or a set period such as This month or This quarter.
3. Under Account types, select the accounts to include, or Select all.
4. Under Tracking category, choose the category.
5. Click Update.

The opening balance runs from the start of the financial year for revenue and expense accounts, and is the sum of all transactions for asset, liability and equity types. Net Movement is the difference between opening and closing balances. Under More you can switch between accrual and cash basis, and multicurrency organisations see the exchange rates used, which you can hide.

Why there's a Tracking Transfers account

If you filter the Balance Sheet by tracking category, you'll spot a system account called Tracking Transfers. Xero uses it to keep the Balance Sheet balancing when a journal or credit note shifts a tracking category's balance without changing the original transaction. The amount for one option is offset by the amounts for the others. You can rename it, but you can't use it in transactions or delete it.

My verdict on Xero tracking categories

I'd use tracking categories if you want a clear view of two things, like location and department, without building a sprawling chart of accounts. Name them carefully, keep options under Xero's suggested 100, and tag from day one, because back-filling is slow. Skip them if what you need is job costing; Xero says tracking isn't built for it. For a fuller look at where the software shines and where it doesn't, read my Xero review, and if tracking limits are the dealbreaker, compare other accounting tools.

Clean tagging is what makes reporting automation possible later, so it's worth getting the set-up right. I run AI training and workshops for teams, and help businesses with AI enablement and workflow automation, so the busywork runs itself and people get time back. Most of that work is with SaaS marketing teams and small businesses. Here's how we can work together.

Frequently asked questions

How many tracking categories can you have in Xero?

Up to four in total, with no more than two active at any time. The other two can only be archived categories.

Can I delete a tracking option I've already used?

No. Xero archives categories and options that have been used and only deletes unused ones. Remove the tracking from transactions first if you want to delete it.

Does renaming a tracking option change old transactions?

Yes. Renaming a category or option updates all transactions and reports with the new name.

Can I use Xero tracking categories for job costing?

Xero says tracking isn't designed for job costing and suggests looking at Xero projects instead.

Why does my Tracking Summary report show Unassigned?

Unassigned is activity in the chosen account types that wasn't given a tracking option.