Key Takeaways
1. Software records your numbers. Someone still has to reconcile payouts, cost inventory, track sales tax by state and review the month-end close.
2. Each sales channel pays out on its own schedule, net of fees and refunds, so deposits rarely match sales reports until they are reconciled.
3. Inventory is an asset until it sells. Expensing it when you buy it makes profit look wrong.
4. Most small ecommerce businesses run one of three setups: software only, software plus a sync tool, or software plus an accounting team.
5. The right setup depends on how many channels you sell on, how many SKUs you carry and which states you owe sales tax in.
If you sell online, you probably already have software to record your sales. The harder question is who does the accounting around it. Orders arrive from your website, Amazon, eBay, Walmart and other channels, and each one pays out on its own schedule, net of fees and refunds. You carry inventory, collect sales tax in more than one state, and need to know whether each product makes money.
This guide explains what ecommerce accounting software does and does not do, what your books need to cover, the three ways businesses run their accounting, and how to choose. If you would rather talk it through, you can book a free 30-minute consultation.
What Ecommerce Accounting Software Does, and What It Doesn’t
Accounting software is the system of record. It records transactions, pulls in data from your sales channels and produces reports. A small ecommerce business usually expects it to:
- Bring channel sales together: your website and marketplaces such as Amazon, eBay, Etsy and Walmart in one view of revenue.
- Track inventory levels: so you can see what is in stock, what is selling and what needs reordering.
- Organize records for sales tax: so you can see where your sales were made.
- Produce reports: a profit and loss statement, a balance sheet and a cash flow statement.
What software does not do on its own is decide how marketplace fees and refunds are booked, work out why a payout does not match, cost your inventory, determine where you owe sales tax, or review the month-end numbers. A person has to do those, whether that is you or an accounting team.
What Your Books Need to Cover
Whether you keep the books yourself or hand them to a team, well-run ecommerce books share these marks. For the basics, see our guide to ecommerce accounting.
Every payout reconciled
Each Shopify, Amazon, Stripe or PayPal deposit is matched to the orders, fees and refunds behind it, so the bank balance and the sales reports agree.
Inventory and cost of goods sold handled correctly
Inventory is carried as an asset and moved to cost of goods sold (COGS) when units sell, including freight, duties and other landed costs.
A regular routine
Transactions are categorized and reviewed on a set schedule, and the books are closed each month so you work from finished numbers.
Sales tax tracked by state
Sales are tracked by state so you can see where you have crossed a threshold, and the reports needed for filing are ready. Read more about sales tax nexus.
Room to grow
New channels, products or entities should not force a rebuild of your books.
A worked example: landed cost and cost of goods sold
The numbers below are illustrative, not client data. You buy 1,000 units for resale.
| Step | Example (illustrative numbers) |
|---|---|
| Buy 1,000 units at $10.00 each | $10,000 |
| Inbound freight and import duty | $1,200 + $800 |
| Landed cost | $12,000, or $12.00 a unit |
| Sell 600 units at $25.00 each | $15,000 revenue |
| Cost of goods sold (600 × $12.00) | $7,200 |
| Inventory still on hand (400 × $12.00) | $4,800 |
| Gross profit, before channel fees | $7,800 |
If the books expense the full $12,000 when you buy, the month shows a $3,000 profit instead of a $7,800 gross profit, and later months look better than they should. Carrying inventory as an asset until it sells, and including freight and duties in its cost, is what makes margins reflect what moved. The IRS covers inventory methods in Publication 538.
If you want help with any of this, talk to an ecommerce accountant.
Want to talk through what your books need?
Three Ways to Run Ecommerce Accounting
Most small ecommerce businesses end up in one of three setups. Here is how they compare.
| Software only | Software plus a sync tool | Software plus an accounting team | |
|---|---|---|---|
| Who matches payouts to orders | You | The tool matches; you review exceptions | The team |
| Inventory and COGS | Manual entries | Depends on setup; you check | Costed by the team, including freight and duties |
| Sales tax by state | You track thresholds | You track thresholds | The team tracks sales by state |
| Month-end close | You | You | The team closes; you review the statements |
| Works best when | Few channels, low volume, time to spare | More channels and you want less manual matching | Several channels and inventory, little time or in-house expertise |
| Watch out for | Errors build up unnoticed | Nobody reviews the tool’s output | Make sure you understand what is in scope |
Most small ecommerce businesses start on QuickBooks Online or Xero. As channels, order volume and inventory grow, some move to an ERP such as NetSuite or Odoo. We keep ecommerce books in Xero, QuickBooks Online, NetSuite and Odoo.
How to Choose Your Setup
1. Start with your needs
Count your channels, your SKUs and the states you sell into. A single-channel store with a small catalog needs less than a multi-channel brand with inventory in several places.
2. Decide what to keep in-house
Some owners keep day-to-day categorizing and hand over reconciliation, inventory costing and month-end close. Others hand over everything. Be clear about which pieces you want off your plate.
3. Check scope and reporting
Ask what is included, how often you receive financial statements, who reviews the work, and what you will see by channel and product. Our post on what an ecommerce accounting firm should do for you lists the questions to ask.
4. Talk before you commit
A short conversation shows whether a provider understands payouts, COGS and sales tax across channels. Ours is a free 30-minute consultation.
Budget matters, but it is not everything. Weigh it against what you need your books to do.
Before You Set Up or Hand Over Your Books
Before you start, remember these key tips:
- Write down your channels, your products and the reports you need to see.
- Gather recent bank, payment processor and marketplace statements in one place.
- Clean up the chart of accounts and clear open items before moving to a new system.
- Plan and check any data migration so opening balances tie to your last closed period.
- After the switch, compare the first month’s reports to the old ones and resolve any differences.
Questions Ecommerce Owners Ask
Do I need an accountant if I already use QuickBooks or Xero?
The software records transactions. It does not decide how fees, refunds, inventory and sales tax are treated, or review the result. With a few channels and low volume you can do that yourself. Many owners hand it over as their business gets more complex.
When does an ecommerce business outgrow QuickBooks or Xero?
When the number of channels, SKUs, locations or entities makes the books hard to keep accurate in a basic ledger. At that stage, many businesses move to an ERP and use dynamics 365 supply chain consulting to plan the inventory and supply chain side of the move. A short conversation can tell you where you are.
Does accounting software work out cost of goods sold for me?
Only if inventory is set up and every cost, including product, freight and duties, is captured. The worked example above shows why that matters.
Do I have to collect sales tax in other states?
Since the 2018 Supreme Court decision in South Dakota v. Wayfair, a state can require out-of-state sellers to collect sales tax once their sales into that state pass its threshold. Thresholds differ by state.
Bottom Line
Software records the numbers. Reconciling payouts, costing inventory and tracking sales tax is accounting work, and someone has to own it. Choose the setup that fits your business now, and revisit it as you add channels or products.
If you have questions, book a free 30-minute consultation with the ecommerce accounting team at Ledger Labs, or see our bookkeeping and accounting services.
