How to do Shopify Bookkeeping
Ecommerce specifically Shopify bookkeeping, is quite different from conventional bookkeeping.
Conventional bookkeeping goes through its operation by getting data or information from the bank. But Shopify bookkeeping is not like them as they require sales data for run financial operations.
There are few grounds that make this unique type of bookkeeping. Some of them are as follows:
- Various components of income
- Sales taxes
- Timing difference
Lets dig deep to know more about how Shopify bookkeeping is not as usual.
1. Various components of income
In Shopify bookkeeping we have to scrutinize sales information to get other data to have a clear financial picture of an organization. Conventional bookkeeping don’t have to do this to get required data
In Shopify bookkeeping there are some components of sales. Some of them are as usual:
Inventory is a common component for some conventional business entity. That means not every business has the requirements to maintain Inventory. On this point Shopify bookkeeping is absolutely different. As every Shopify merchant must maintain Inventory.
It can be said that without tracking Inventory properly an e-commerce initiative may shut down after some time. Because without knowing the demand, 8stock and necessary level of stock no Shopify merchant can survive for long.
3. Sales taxes
E-commerce or Shopify business has the feature of doing business across the border which is great from a business point of view. As a greater business area means more sales, more sales obviously means more revenue.
Sales taxes are crucial for every business but for e-commerce or Shopify business it would be more than that.
An e-commerce or Shopify business might be destroyed by neglecting sales taxes. So, sales taxes would be a demon for you, a Shopify merchant. The Authorities may impose a huge fine or Force to shutdown. And that wouldn’t be expected for anyone.
4. Timing difference
Timing difference is one of the features of Shopify businesses. E-commerce or Shopify business transactions are not the same as timing. As usual business has sales and other transactions which are recorded considering time. In Shopify you don’t get sales or other transactions data on time. Those data would find after some time to be recorded. You never get any data at the time the transition occurred.
In Shopify business you can get Assistance from some applications. The feature of Automation is a notable one. By using automation you can record transactions easily. This way you can save time as well as energy.
Steps of Shopify bookkeeping
Here we follow some steps to Shopify bookkeeping. By doing these steps you can maintain Shopify books easily. We follow five steps for bookkeeping of Shopify those are as follows:
- QBO Setup for Shopify
- Using QBO bank feeds
- Reconciling Accounts
- Adjusting Inventory Balance
- Understanding Sales Taxes
Step 1. QBO Setup for Shopify
In this step we will do the necessary tasks by some sub steps.
Identify payment processor
First task of the QBO setup for Shopify is to identify payment processors. You have to know how many processors you or your client have. You can make a list of all payment processors or payment gateway. Here we have some of them:
- Shopify payment
- Amazon pay etc
Set up the chart of accounts
Chart of accounts (COA) is the heart of accounts. So, first you need to create the necessary COA. You may guess that COA of as usual bookkeeping and Shopify bookkeeping are not the same. Obviously there are some differences. Here we present a list of COA used in Shopify bookkeeping:
Account Name Account Type
Shopify Sales Income
Shopify discount Income
Shopify refund Income
Shopify shipping income Income
Inventory Other Current Assets
Shopify Pending Balances Other Current Assets
Shopify Gift Card Liabilities Other Current Liabilities
Shopify Sales Tax Collected Other Current Liabilities
Shopify Payment Clearing Other Current Assets
Shopify PayPal Clearing Other Current Assets
Shopify Amazon Pay Clearing Other Current Assets
Affirm Clearing Other Current Assets
AfterPay Clearing Other Current Assets
Klarna Clearing Other Current Assets
Shopify fees Cost of Goods Sold
PayPal Fees Cost of Goods Sold
Amazon Pay Fees Cost of Goods Sold
Affirm Fees Cost of Goods Sold
AfterPay Fees Cost of Goods Sold
Klarna Fees Cost of Goods Sold
Streamline PayPal setting
PayPal is not only a payment processor. It’s just like a bank. You can use PayPal for receiving as well as sending payment. This unique feature makes PayPal different from others. On the other hand PayPal is the most used payment processor for e-commerce or Shopify.
If your client also uses PayPal, then you have to do some work before starting Shopify bookkeeping.
As a user you should use separate PayPal for Shopify sales. Never use the same PayPal for Shopify and other transactions like personal expenses, sales from other channels or Amazon.
If you don’t use separate PayPal for Shopify, then it will give you extra pain and take extra time to process and extract data. To integrate Paypal with Quickbook you can use an application. To get that app, follow this link: https://quickbooks.intuit.com/online/integrations/paypal/
Add sales to QuickBooks Online
You can Record Shopify sales by using 2 method those are:
- Manually or
- using app
For Recording sales you Need data. In Shopify bookkeeping required data comes from various reports. Here we will get two reports from Shopify seller panel.
- Shopify Payout report
- Shopify finance report.
In this stage questions arise what information we will get from these reports Required To record sales.
Shopify Payout report
From Shopify payout report. You will get the amount paid by Shopify. That amount come from a gross amount minus other deduction like fees, refund and adjustments
Shopify Finance report
From this report you will get lots of information related to sales. Some of that information decreases the total sales amount on the other hand some of that information increases the total amount. If you look at a Shopify finance report you will see all the information is divided into 4 sections: Sales, gross profit, liability and payments.
From sales division you will get:
From payment division you will get:
Shopify payment as well as payment from other payment processor
From the liabilities section you will find one item that is a gift card sale.
Record sales Manually
It’s time to record the sale transaction of Shopify. We will do that by Journal Entry. The journal entry would be just like this:
Shopify Sales Cr 90
Shopify Shipping Cr 15
Tax Liability Cr 10
Discount Given Dr 5
Shopify Return Dr 5
Shopify PayPal Fee Dr 5
PayPal Bank Dr. 100
The entries of these journals come from two Shopify reports we noted. Here sales income, discount, shipping income and sales tax payable come from Shopify finance report.
If you found anything like Amazon clearing or Amazon fee, then you know that those data come from Amazon settlement.
Shopify clearing and Shopify fees data come from payout report.
Usually we find these data monthly duration. We have to work more than a single transaction. Microsoft Excel is the most useful tool to process that data for record sales and other Shopify transactions. You can check how to process Shopify data for recording sales in QBO.
Add Sales using A2x
Sales recording by manually is a tedious job. It also takes a huge amount of time. Those make manual recording painful as all boring. Applications like A2X will give relief by easing sales recording in Shopify.
Step 2: Using Shopify deposit in the bank feed
In QBO it’s a normal process to categories transactions from bank feed. For e-commerce or Shopify business it’s also a common task. One thing you should remember is that all deposits from Shopify should be matched. Never try to add any transactions. Because, adding any deposit will result in duplicate income in QBO .
Step 3: Recognition of accounts
This step is also the same as conventional bookkeeping. You have to reconcile your bank as well as your credit card. Beside these you also have to reconcile PayPal.
You know PayPal is considered a bank. As in QBO we treat PayPal as a bank. Then we are bound to reconcile PayPal just like a bank and credit card. Before reconciling PayPal, you have to know how to process a PayPal statement for uploading on QBO. If you don’t have a connection between QBO and PayPal, then you have to upload a PayPal statement into QBO.
You have to record payment processor fees and reconcile payment processor clearing accounts.
Most cases the payment processor’s amount is net of fees. You can find total fees amount from reports of payment processor. After getting those you have to record them in QBO.
Note: PayPal is not a bank
Step 4: Adjusting Inventory
Inventory management is a very important step for all types of business. If your business works with inventory then it’s mandatory to track inventory of your organization.
For e-commerce or Shopify business you must track inventory. Without it you have to face the huge problem of failing to fulfill customers orders on time or having to bear unnecessary expenses for storing too much inventory.
Inventory management is crucial for increasing as well as maintaining a business well. As if you failed to fulfill an order, a wrong message would pass to that customer. He might be your regular customer. But now he will not return to your store. He left you forever as he thought you could not have a product to sell.
Now, you may think to store extra amounts of inventory to retain every customer and make them regular customers. This activity requires extra money for procurement as well as storing process. And these will negatively affect your Shopify business.as a result you may experience less revenue or even loss of money.
To avoid this type of situation you must track inventory for your Shopify business.