Shopify Bookkeeping and Accounting
What is Bookkeeping?
Bookkeeping is an accounting process that involves structuring your accounting software and the chart of accounts, recording all business activity that involves a change in value in a manner that provides a clear reporting of change in a business’ profitability, cash position and overall wealth position. There are two accounting platforms that we recommend for small to medium ecommerce sellers—Quickbooks Online (QBO) and Xero. These programs are complete accounting packages using the double entry methodology that facilitates financial data reconciliation back to independent financial reports such as bank statements. Reconciliation of all financial activity is an important part of the bookkeeping process as it ensures that all transactions have been reflected in the financial reports.
The chart of accounts is broken into five main types of accounts: Assets, Liabilities, and Equity are captured in the Balance Sheet, which reflects the wealth position of the business since it was created. Revenues and Expenses are reported in the Profit and Loss Statement, which tracks profitability by financial year. Accounts from both the Balance Sheet and the P&L Statement are used in the Statement of Cash Flow. The Cash Flow Statement can reflect a month, a year or a specified period where you want to monitor cash collected and expended in the business. For most small business, this statement is overlooked as small business owners are more interested in their Profit and Loss Statement. However, monitoring your cash is important as it demonstrates your business’ ability grow without relying on outside funds. If you use a cash management system like Profit First for Ecommerce Sellers, you have this information easily available and the reporting is not as critical.
The true benefit of accurate bookkeeping is to monitor your business activity so you can learn from the past and make better decisions going forward. In addition, it facilitates the reporting required for income taxes, sales taxes, etc. Recording all transactions, reconciling to outside statements, recording journal entries to track inventory purchases and sales, tax filings, and generating financial reports are typical processes that your ecommerce bookkeeper can perform for you. In addition, some bookkeepers assist with forecasting and advising on future activities in the business.
Managing your Shopify Books
When you sell on an ecommerce platform such as Shopify, you want to ensure that your ecommerce bookkeeper or ecommerce accountant understands how the revenue and fees are paid. It is important that all revenue is recorded and that the fees are also recorded. The cash deposits you receive generally have the fees deducted and represent a net amount. You may also be using the payment plan options offered to your buyers from Shopify, which requires you to record the transactions in accordance with how the funds are received.
An ecommerce bookkeeper should understand the reports available from Shopify. They should be able to pull the reports and make the necessary entries without your involvement. They should also be able to guide you in the permission levels they need to ensure they can work independently.
What are clients can say about bookskeep
Having an experienced Shopify accountant help you monitor the return you are actually receiving on ad spend, based on sales increases instead of other marketing metrics will keep the proper focus on profitability, not just increased sales revenue.
How to Keep your Shopify Books
At least on a weekly basis, you should book the income received from Shopify into your bank account. This works best with connected bank feeds, so your accounting system captures the entries automatically.
Each month end, you should pull a payouts report and create a journal entry to increase revenue by the amount of fees collected, and record the fees as a Cost of Sales transaction. In the journal entry you will also decrease revenue by the amount of sales tax collected and record this amount as a Sales Tax Payable on the balance sheet.
Finally, depending on your other sales channels and processes for tracking inventory, you will record the Cost of Goods Sold that generated that revenue. You can look at your cost value of your Units sold and do a journal entry to reduce inventory and increase your Cost of Goods Sold account.
We often automate this process by using a software application called A2X. By integrating Shopify with the accounting system using A2X, we can automate and simplify this process. Shopify also charges a subscription fee for its service each month and this expense, when paid, should be recorded as an expense. Typically, we use Dues and Subscriptions.
Potential Problems to be Aware of for Shopify Bookkeeping
Shopify pays out on a “daily” basis. As a result, ecommerce businesses wait only a few days to receive their funds. Many of our clients chose to manage Shopify sales on a cash basis and not record sales on an accrual basis. Typically, sales in the last few days of the month consistently hit the next month and it evens out over time. The impact is often not great enough for a smaller seller to pay for an integration app or for the extra effort to report out on an accrual basis.
Since Shopify takes payments using a variety of merchant processors such as Paypal, Stripe etc., your ecommerce bookkeeper will need access to these accounts as well, to be able to determine the fees and properly record them as COS expenses in your books
One of the benefits you will receive from working with a Shopify bookkeeper is they should be able to help you if something is not working correctly. Your accountant must know how to navigate these platforms in order to be your partner in the business.
Let’s see if The SmartBooks Program is right for you
Your business is performing and you need good numbers, yet you can’t do it all. Our SmartBooks Program is a bookkeeping service designed to free up your time.
Hiring an Experienced Shopify Bookkeeper
If you need help setting up your Shopify accounting, bookskeep’s SmartStart program sets up your accounting system, teaches you to integrate your bank and credit card accounts and the A2X integration if you choose to use it. We also train you to manage your books yourself so you can have confidence in your numbers. If numbers aren’t your zone of genius or your business requires your attention in other areas, our SmartBooks program is our done-for-you offering.
We’d love to learn more about your business and how we can help you get good accounting data to use to manage your business. Set up an appointment today to get started.
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