Bookkeeping for Shopify stores

How is Shopify different from a marketplace?

On Amazon or eBay, the marketplace usually collects and remits sales tax. On your own Shopify store, you collect it, and must register, file and pay it in each state where you have nexus. That makes sales tax a liability in your books rather than something to ignore. See Shopify sales tax setup.

Sales on marketplaces connected to Shopify, such as through sales channel apps, may be taxed by the marketplace instead, so separate them in your reports.

How should each month be recorded?

What is the monthly routine?

1. Export the sales and finance reports

   For the calendar month.

2. Post a summary journal

   Sales, discounts, refunds, shipping, tax, gift cards and fees.

3. Reconcile payouts

   Shopify Payments payouts, plus PayPal and any other gateway, to bank deposits.

4. Record inventory and supplier costs

   As inventory, moved to cost of goods sold when sold.

5. File and pay sales tax

   Clearing the liability for each state.

Why do payouts and sales differ?

Payouts lag orders by a few days, combine many orders, deduct fees and refunds, and may hold funds for disputes. Sales made on the last days of a month are often paid out next month. A clearing account for each gateway, debited with sales and credited with payouts, should return to zero once timing differences clear. See how to do a bank reconciliation.

Keep one clearing account for each payment method, such as Shopify Payments, PayPal and Shop Pay Installments, so differences are easy to trace.

Chargebacks reverse a sale and add a fee. Record both, and reverse the chargeback if you win the dispute.

What does a monthly reconciliation look like?

A store's October sales report shows $20,000 of gross sales, $1,200 of discounts, $800 of refunds, $900 of shipping charged and $1,350 of sales tax collected. After $900 of processing fees, $19,350 was due from Shopify Payments: $18,950 was deposited in October and $400 was still in transit at month end. The journal records net sales of $18,000, shipping income of $900, a $1,350 sales tax liability and $900 of fees. The clearing account shows $400 left, matching the payout in transit, which clears in November.

How is inventory handled?

Stock bought from suppliers is inventory, expensed as cost of goods sold when sold. Dropshippers and print-on-demand sellers who never hold stock record the supplier's charge for each order as cost of goods sold. See cost of goods sold and dropshipping profit tracking.

What are the common mistakes?

• Treating sales tax collected as income, then being short when returns are due.
• Recording payouts as sales, hiding fees and refunds.
• Forgetting other gateways, such as PayPal, so some sales never reach the books.
• Recording gift card sales as income before they are redeemed.
• Expensing stock purchases instead of recording them as inventory.

See how to record refunds and chargebacks.

If collected tax has already been spent, see collected sales tax but did not remit.

How does this feed the tax return?

Gross sales less discounts and refunds is gross receipts on Schedule C or the business return; cost of goods sold and expenses follow from the accounts above. Reconcile gross receipts to any Form 1099-K. See Form 1099-K.

This guide is general information. It is not tax or legal advice for your situation.