An Item is simply a product or service which you sell or buy from your Customers or Suppliers. ERPNext is optimized for itemized management of your sales and purchase. However, you can skip creating Items. If you are in services, you can create an Item for each services that your offer.
There are two main categories of Items in ERPNext
As you may have guessed, inventory balances are tracked for stock items and not for non-stock items. Non-stock items could be services or consumables that are not tracked.
ERPNext allows you to classify items into groups. This will help you in getting reports about various classes of items and also help in cataloging your items for the website.
In ERPNext you can create Warehouses to identify where your Items reside.
There are two main Warehouse Types that are significant in ERPNext.
Stores: These are where your incoming Items are kept before they are consumed or sold. You can have as many “Stores” type Warehouses as you wish. Stores type warehouses are significant because if you set an Item for automatic re-order, ERPNext will check its quantities in all “Stores” type Warehouses when deciding whether to re-order or not.
Asset: Items marked as type “Fixed Asset” are maintained in Asset Type Warehouses. This helps you to separate them for the Items that are consumed as a part of your regular operations or “Cost of Goods Sold”.
These settings are only required if this particular Item has a different tax rate than what is the rate defined in the standard tax Account.
For example, you have a tax Account, “VAT 10%” and this particular item is exempted from this tax, then you select “VAT 10%” in the first column, and set “0” as the tax rate in the second column.
Inspection Required: If an incoming inspection (at the time of delivery from the Supplier) is mandatory for this Item, mention “Inspection Required” as “Yes”. The system will ensure that a Quality Inspection will be prepared and approved before a Purchase Receipt is submitted.
Inspection Criteria: If a Quality Inspection is prepared for this Item, then this template of criteria will automatically be updated in the Quality Inspection table of the Quality Inspection. Examples of Criteria are: Weight, Length, Finish etc.
ERPNext lets you maintain multiple selling prices for an Item using Price Lists. A Price List is a name you can give to a set of Item prices.  Why would you want Price Lists? You have different prices for different zones (based on the shipping costs), for different currencies, regions etc.
FIFO is the more accurate system of the two but has a disadvantage. You cannot have negative stock in FIFO. This means that you cannot make forward transactions that would make your stock negative. Why is this? Because sequences are so important to FIFO, you cannot track the value of the stock if it does not exist!
In Moving Average, since each item has an “average” value, the value of the negative stock is also based on this “average”.
In scenarios where you may have to track individual units or batches of Items you sell, ERPNext allows you to manage Serial Numbers and Batches.  Why is this useful?
In ERPNext, Serial Number and Batch are separate entities and all stock transactions for Items that serialized or batches must be tagged with either the Batch or Serial Number.
Important: Once you mark an item as serialized or batched or neither, you cannot change it after you have made any stock entry.