When you first step into the world of accounting for your Shopify store, you may experience confusion and frustration. Or you may simply ignore a lot of things that will later become BIG issues. But we are here to help – this is our world! We live in it every day, so we understand your pains and can prevent some bigger pains down the road. Although you’ll face various unique challenges, we have three accounting basics for Shopify sellers that will give you a strong foundation.
1. Don’t sync Shopify with your accounting software
One of the first things many sellers do when they get accounting software is sync it with their Shopify store. But syncing Shopify with QuickBooks Online (QBO), or other accounting software, can create a huge mess. Activity in your bank account rarely matches with the activity that QBO pulls in from Shopify. You’ll have to solve a lot of puzzles, and the hassle is just not worth it.
Instead, we recommend using Shopify reports to view unique financial data when necessary (instead of QBO). At month-end, you can enter journal entries into your accounting software that reflect all your financial information. Trust us, this will save you time!
2. Reconciling Shopify, payment processors, and bank deposits
Probably the most difficult part of ecommerce accounting is understanding that the deposits hitting your bank account do not reflect your true revenue numbers. These deposits from sales channels and payment processors are net deposits. This means the deposit includes revenue minus other costs that are happening on your sales channels and payment processors. By not recording only a net deposit, and not all this other activity, you will be missing out on key information.
So, with Shopify accounting, you will need to gather financial activity from Shopify reports and from your payment processors. You’ll also need to reconcile Shopify reports with payment processor reports, and make sure these match with what is hitting your bank account.
This reconciliation process can be tedious, but it needs to be done. Shopify sellers tend to have multiple payment processors that need to be reconciled. This makes Shopify accounting often more complex than, say, Amazon accounting. Click here, for more information on this reconciliation process.
3. Sales tax compliance
One of the most frequent accounting mistakes we see for Shopify sellers is that either (1) they aren’t collecting sales tax at all, or (2) they aren’t collecting in all the necessary states. Sales tax compliance is an important part of your Shopify business that CANNOT be ignored. We’ve seen it destroy some businesses and significantly reduce the growth of others.
Sales tax is a complicated issue to tackle for ecommerce businesses. One that will most likely require the help of experts, once your business is large enough. As a Shopify seller its important to understand a few things:
You may owe sales tax in states where you sell a lot of product (either in terms of revenue or transactions). This is call economic nexus and is the main reason you will need to collect and remit sales tax as a Shopify business. Laws vary between states, so it’s a mess. But you can see current economic nexus laws here, which may require you to collect and remit sales tax in certain states.
Don’t forget your other sales channels
When considering economic nexus, you need to consider not only your sales on Shopify, but across all channels. If you also sell on Amazon, and you owe sales tax in North Dakota because of the amount of sales on Amazon, you also need to collect and remit sales tax for North Dakota orders on Shopify. Or, if you owe sales tax in certain states because of FBA nexus, for example, you will need owe sales tax in those states for sales on Shopify.
Configure your Shopify settings
Once you know where you owe sales tax, you can setup Shopify to collect sales tax in those necessary states. For details on how to do this, and for more information on sales tax compliance, download our ecommerce sales tax white paper, here.