Ecommerce looks simple from the outside: money comes in, product goes out. In the books it is one of the more complicated business types, because sales, fees, refunds, taxes, and inventory move through several systems before reaching your bank.
Payouts are not sales
A Shopify, Amazon, Etsy, or Stripe deposit is usually net of fees, refunds, and chargebacks, and sometimes sales tax. To record revenue correctly, book gross sales, record fees and refunds as separate items, and reconcile the result to the deposits. Otherwise your income is understated, your expenses are missing, and your tax return will not match the information reports the platforms send. Payment processors may issue Form 1099-K, with reporting thresholds that have changed more than once, so do not rely on that form for your sales figure.
Inventory and cost of goods sold
- Track the cost of each product, including freight and other costs to get it ready for sale.
- Choose and apply a consistent inventory costing method.
- Record inventory purchases as assets, then move them to cost of goods sold when sold.
- Count inventory periodically and adjust for shrinkage and damaged goods.
- Know that inventory rules differ for product-based businesses and affect your taxable income.
Sales tax
Since the Supreme Court's Wayfair decision, states may require out-of-state sellers to collect sales tax once they pass an economic nexus threshold. Thresholds and rules differ by state, and many states also have marketplace facilitator laws under which the marketplace collects tax on sales it facilitates. Even then, you may still have registration or reporting duties. See our guide to multi-state sales tax compliance and sales tax filing services.
Profit by channel and product
Top-line revenue hides margin differences. Track revenue, product cost, fees, shipping, ad spend, and returns by channel so you can see where you actually make money. Shipping and advertising are often the costs that quietly erase profit.
Other issues specific to ecommerce
- Returns and refunds, including restocking.
- Shipping income and costs.
- Gift cards and store credit as liabilities.
- Foreign sales, currency, and customs.
- Dropshipping and fulfillment agreements.
- Contractor payments for freelancers and agencies.
What to expect from a provider
- 1Integration with your platforms or a clean import process.
- 2Monthly reconciliation of every channel to the bank.
- 3Inventory and COGS handled, not ignored.
- 4Sales tax support or coordination with a specialist.
- 5Profit reports by channel.
- 6Tax preparation that ties to the same books.
Our bookkeeping service and sales tax compliance service are built for this kind of complexity. To discuss your accounting needs, tell us which platforms and states you sell in.
