Ecommerce Accounting: A Guide for Online Stores

Ecommerce accounting is the work of recording, organizing and reporting an online store's finances so the books match the bank and show real profit. It covers the same ground as accounting for any business, plus the parts that make online selling different: sales that arrive through payment processors as net payouts, inventory that has to be costed, sales tax across many places, refunds, and several sales channels feeding one set of books.

What makes ecommerce accounting different

A physical shop takes a card payment and sees the money arrive. An online store's money takes a longer route:

• Payouts are net. Shopify Payments, Stripe, PayPal and marketplaces deduct fees, refunds and sometimes tax before they deposit. One deposit can contain hundreds of orders.
• Timing shifts. An order placed on 30 June may be paid out in July and delivered later still.
• Inventory is the largest asset. Stock bought months ago becomes cost of goods sold only when it sells, and its true cost includes freight and duty.
• Sales tax depends on where customers live. Selling across states or countries creates obligations in each place where you meet its rules.
• Several channels feed one ledger. Your own store, Amazon, eBay, wholesale and pop-up sales each report differently.

Good ecommerce accounting turns all of this into three reliable reports: a profit and loss statement, a balance sheet and a cash flow statement.

The accounts an online store needs

Your chart of accounts is the list of categories every transaction is sorted into. A store that sells products online usually needs at least these:

Cash or accrual accounting

Cash basis accounting records a sale when the money arrives and an expense when you pay it. Accrual accounting records them when they are earned or incurred, regardless of when money moves.

When an online sale counts as revenue

Under accrual accounting, revenue is generally recognized when the customer receives what they paid for. For most stores that means when the order ships or is delivered, depending on the policy your accountant sets. These sales need different treatment:

• Preorders and backorders. Payment taken before the product exists is money you owe the customer until you deliver.
• Gift cards. The sale creates a liability. Revenue comes when the card is redeemed.
• Subscriptions paid in advance. A twelve-month plan paid upfront is earned month by month.
• Returns. Refunds reduce revenue in the month they happen. If returns are frequent, some stores also record an estimate for expected returns.
• Marketplace sales. Amazon and other marketplaces report gross sales, fees and refunds in their settlement reports. Record the parts, not the net payment.

Inventory and cost of goods sold

Inventory starts as an asset when you buy it and becomes cost of goods sold when it sells. Two decisions shape the numbers:

1. What goes into a unit's cost. The supplier price plus inbound freight, duty and any other cost of getting stock ready to sell. This is landed cost, and leaving it out overstates your margin. Our landed cost guide explains how to allocate it.
2. Which units you assume sold first. First in, first out (FIFO) and weighted average cost are the common methods for online stores. Pick one with your accountant and keep it consistently.

Sales tax, VAT and GST

Sales tax collected from customers is not income. It is money you hold for the tax authority, recorded as a liability until you file and pay. The rules that decide where you owe it differ by country and, in the United States, by state.

In many places the marketplace collects and remits the tax for you as the marketplace facilitator. Shopify does this for Shop channel orders in the United States, for example. That tax never reaches your account, so it should not appear in your income or liabilities. Keep a record of which channel handled the tax on each sale so your returns match.

The monthly close for an online store

Closing the month means checking that the books are complete and correct, then locking them. A practical close for an online store:

1. Reconcile every bank account, credit card and payment processor to its statement.
2. Confirm every processor and marketplace clearing account is back to zero or explained.
3. Record cost of goods sold and check inventory value against your stock records.
4. Record bills that arrived late and expenses paid personally that the business owes back.
5. Check sales tax payable against what you collected and what marketplaces remitted.
6. Review the profit and loss statement and balance sheet for anything unusual.
7. Lock the month so earlier figures cannot change without anyone noticing.

Reports to review every month

• Profit and loss statement. Revenue, cost of goods sold, gross margin and operating expenses. Read it by channel if you sell in more than one place. Our guide to reading an ecommerce P&L explains each line.
• Balance sheet. What the business owns and owes at month end, including inventory, sales tax payable and gift cards outstanding.
• Cash flow statement. Why your bank balance changed, which matters when profit and the bank balance disagree.

Do you need an ecommerce accountant?

A bookkeeper records transactions and reconciles accounts each month. An accountant or CPA advises on tax, prepares year-end statements and returns, and helps with structure and planning. A fractional CFO focuses on forecasting and funding as a brand grows.

Ecommerce accounting software

Ecommerce accounting FAQs

What is ecommerce accounting?

Ecommerce accounting is recording and reporting an online store's finances: sales from each channel, payment processor fees, refunds, inventory and cost of goods sold, sales tax and operating expenses. Its goal is books that match the bank and a profit figure you can rely on.

How is ecommerce accounting different from regular accounting?

The principles are the same, but online stores receive money as net payouts from processors and marketplaces, carry inventory, collect sales tax for many places and often sell through several channels. Each of these needs its own accounts and reconciliation steps.

Should an ecommerce business use cash or accrual accounting?

Accrual accounting gives a truer monthly picture for a store that holds inventory, because it matches product costs to the month the products sold. Your accountant will confirm which method you must use for tax.

What does an ecommerce accountant do?

An ecommerce accountant advises on tax, sales tax obligations and inventory costing, prepares year-end statements and returns, and reviews the monthly books. Many also set up the chart of accounts and payout reconciliation for a new store.

What accounting software do online stores use?

QuickBooks Online and Xero are the most common general products, usually with a payout connector such as A2X. Ecommerce accounting software such as Nummbas Books includes payout matching, bookkeeping and inventory costing in one product.