Xero tracking categories are labels you add to transactions so you can report by something other than the account code, such as a branch, a department or a job. Xero lets you have up to four tracking categories in total, but only two can be active at any time. Each category holds a list of options (for example, a "Location" category with one option per shop), and Xero recommends no more than 100 options in each category so reports load quickly. If you need to report by more than two things, such as job, region and division, Xero can't do it directly. This guide covers how to set tracking categories up so they stay useful, and the workarounds that hold up when two isn't enough.
How Xero tracking categories work
A tracking category has a name and a list of options underneath it. When you code a transaction, such as an invoice, a bill or a spend money line, you pick an option from each active category as well as the account. You can then run the profit and loss, budget and other reports split by those options.
The limits, as at October 2026 (from Xero's own help article on setting up tracking categories):
- Up to four tracking categories in total, counting archived ones.
- Only two active at once. To start using a new one, you need to archive or delete one of the active two.
- No hard cap is stated on options, but Xero recommends no more than 100 options per category, so reports load quickly.
- A category needs at least one option before you can use it on a transaction.
Xero said in September 2026 that it is exploring improvements to tracking categories but can't commit to anything yet, so plan around the current limit.
How to set up tracking categories in Xero
- In the Accounting menu, select Accounting settings.
- Click Tracking categories.
- Click Add Tracking Category and give it a name, such as "Location" or "Division".
- Under Category options, add each option, such as each branch or shop.
- Click Save.
Using them well
Most tracking problems come from how the categories were set up, not from Xero itself. A few habits keep them useful:
- Start from the reports you need. Write down the monthly reports the owner and managers actually read. The splits that appear in those reports are the ones worth a tracking category. Everything else can go.
- Use them for things that last. Branches, divisions and departments change slowly, so they suit tracking well. Individual jobs come and go, and they quickly fill up the option list.
- Keep names short and consistent. Use the same spelling and codes your other systems use, such as the branch code in your job or payroll system. That makes it far easier to join reports later.
- Archive old options instead of deleting them. Archived options stop appearing for new transactions but keep your history intact.
- Make tagging part of the process. Untagged transactions show up as "Unassigned" and quietly make the split reports wrong. Set default tracking options on contacts where you can, and check the unassigned total at month-end.
- Remember the balance sheet. Tracking is mostly used on income and expenses. If you need a balance sheet by branch or entity, tracking is usually the wrong tool; separate Xero organisations or a reporting layer across them often work better.
Why two categories run out quickly
Two sounds like plenty until a business grows. Common combinations that hit the limit:
- Builders and trades: job, plus region, plus division (residential and commercial).
- Wholesale and distribution: branch, plus sales channel, plus product group.
- Professional services: office, plus service line, plus partner or client group.
- Groups and franchises: location, plus department, plus funding or grant source.
Once the third dimension appears, people start squeezing information into the categories they have, and the reports get harder to trust. These are the options when you need more than two.
Option 1: Combine two dimensions into one category
For example, instead of "Region" and "Division", use one category with options like "QLD-Residential" and "QLD-Commercial", leaving the second category free for something else.
Good for: a small number of combinations. Watch for: the option list grows quickly (three regions and three divisions is nine options) and you can't easily report on one dimension alone, such as all residential work across every region, without exporting to Excel.
Option 2: Use Xero Projects for jobs
Xero Projects tracks time, costs and invoicing per job, which can free both tracking categories for other things.
Good for: service businesses and smaller builders whose jobs are simple. Watch for: costs have to be assigned to the project as well as coded, which is easy to miss, and project reporting is separate from the main profit and loss reports.
Option 3: More detailed account codes
Some businesses add accounts such as "Sales – Commercial" and "Sales – Residential" to carry a dimension in the chart of accounts.
Good for: one extra dimension with only a few values. Watch for: the chart of accounts gets long, coding errors increase, and it becomes painful if you later change how you split the business.
Option 4: Keep the detail in another system and report from both
Often the extra detail already exists somewhere else: the job system knows the job, the stock system knows the product group, the payroll system knows the department. Instead of forcing it all into Xero, Xero keeps the accounts with one or two categories, and a reporting layer such as Power BI joins Xero with those systems by a shared code.
Good for: three or more dimensions, several entities, or reports that need operational detail Xero was never meant to hold. Watch for: it needs a consistent code that appears in both systems, such as a job number or branch code, and someone has to set the reporting up properly once.
Which option fits
- Two dimensions plus a simple third: combine categories (option 1) or use Projects for jobs (option 2). No extra cost.
- A third dimension with a few fixed values: account codes (option 3) can work, if you keep them tidy.
- Three or more dimensions, several entities, or reports that mix in job or stock data: keep the detail where it already lives and report across systems (option 4).
If you're unsure, start with the reports you actually need each month and work backwards. The dimensions that appear in those reports are the ones worth tracking properly.
Frequently asked questions
How many tracking categories can I have in Xero?
Up to four in total, but only two can be active at any time. To use a third, you need to archive or delete one of the active two.
Is there a limit on tracking options in Xero?
Xero's help article recommends no more than 100 options in each tracking category so reports load quickly. Long option lists are usually a sign the category is being used for something that changes often, such as individual jobs.
What happens to transactions with no tracking option?
They show as "Unassigned" in tracking reports. A large unassigned total means the split reports are incomplete, so it's worth checking at month-end.
Will Xero add more tracking categories?
It's been one of the most requested features on Xero's product ideas forum for years. In September 2026 Xero said it is exploring how to improve tracking categories but can't commit to anything yet, so it's safest to plan around the current limit for now.
Can a reporting app add more dimensions to Xero?
Reporting apps can only report on what is in Xero, so they can't add a dimension that isn't recorded somewhere. If the extra detail lives in another system, such as your job or stock system, a report that joins both systems can show it.
Should I move off Xero to get more reporting dimensions?
Usually not just for this. Larger systems do offer more dimensions, but moving is a big project. If the extra detail already exists in your other systems, reporting across them is usually quicker and cheaper than replacing Xero.
If you're stuck trying to fit three or more ways of slicing the business into Xero, see our Xero and MYOB reporting and dashboards service, or book a free initial chat. If combining categories or using Projects will do the job, we'll tell you that too.