How to Do Your Shopify Accounting – Everything You Need to Know

As a new ecommerce seller, you’re probably anxious to get started making sales. Starting a small business is exciting, but there are some backend steps to take before you embark on this new venture, and one of those is how to do the accounting for your Shopify store.

Accounting is often overlooked until it’s time to reconcile or remit; we recommend establishing a strong accounting plan from the get-go so you get started on the right foot. Good accounting practices can help your business grow, which is what we want for all of our clients!

Accurate financials are crucial in making well-informed decisions for your Shopify store.

This article dives into multiple ways to do Shopify accounting. We know Shopify accounting can get messy, complicated, and quite frustrating. But getting accurate financials is crucial in making well-informed decisions for your Shopify store. Every day we personally see the power that accurate Shopify accounting can provide small business owners who want to profitably grow their ecommerce business.

Our goal with this article is to give you a comprehensive understanding of the things you should consider, along with various methods, so you can decide on what is best for you. Once you’ve decided, this guide also helps you execute the method you’ve chosen.

How Do I Know Which Shopify Accounting Method is Right for Me?

An important thing to understand with your Shopify accounting is the trade-off between the amount of detailed financial information you get and the amount of time it takes to get that level of accuracy.

Each method we cover progressively gets more accurate and, therefore, more complex and time-consuming. Depending on the stage and size of your business, there is a time and place for each method. We suggest each method based on the following business sizes:

  • Cash-Deposit Method – Sellers doing less than about $250K in annual sales
  • Shopify Details Method – Sellers doing about $250K to $1M in annual sales
  • Shopify Accounting Guru Method – Sellers doing about $1M+ in annual sales

How is Shopify Accounting Different From Other Business Accounting?

In addition to accounting for transactions in your bank account and credit cards like other typical businesses, Shopify sellers have an added complexity of accounting – a lot of financial activity occurs in your Shopify channel and your payment processors.

You can think of the activity in three levels (see diagram below). These levels include:

  • Your sales channels (Shopify)
  • Your payment processors
  • Your bank account.

Each level has financial data flowing through it.

Therefore, the Shopify deposit you see in your bank account is a NET deposit of all the activity happening on Shopify and your payment processors. Activities included in this net deposit are:

  • Sales
  • Chargebacks
  • Refunds
  • Shipping
  • Sales tax
  • Merchant fees
  • and more

It’s more than just sales.

So, if you simply record the Shopify deposit you see in the bank account as sales, you are misstating revenue and missing other activity going on.

The larger the business, the larger the discrepancy from this misstatement is going to be, which is why bigger companies need to move towards the Shopify accounting guru method. They will get more detailed info about what is happening at the channel and payment processor levels, so they can make decisions that will increase profits.

Importance of Accurate Accounting for Shopify eCommerce Stores

Without accurate accounting and bookkeeping practices, you have no idea how successful your Shopify store actually is. In addition to recording sales, you need to keep track of all financial transactions, including fees, taxes paid, refunds, shipping costs, and more.

Here are some benefits of detailed Shopify accounting:

  • Financial Forecasting Made Easier
  • Sales Tax Compliance

How to Do Accounting for Shopify Businesses – 3 Methods

The methods below are focusing on different ways to record all the activity in Shopify and your payment processors.

Remember that you will likely still have other financial transactions through your bank account and credit cards that you’ll need to record (these other transactions are typically much easier to handle).

Also, know that each of these methods will suffice when it comes to getting an accurate net income and the financials needed for tax season. But other big differences are really important to understand!

Also, we’re not going to go into accurate COGS and inventory recording in this blog. That’s a whole other ball of wax!

Let’s dive in.