Etsy Accounting Guide: Everything You Need To Know
Estimated reading time: 9 minutes.
Etsy sellers, arguably, have more to account for in their books than other ecommerce sellers.
Keeping track of all the costs involved in creating a product, and then selling it, is essential to ensuring you make a profit in the end.
If you want to grow, that is.
In this Etsy accounting guide, part of our Etsy accounting hub, we’ll be covering all the key things that sellers like you need to know, and do, to successfully manage your books. Whether you’re an accounting amateur or pro, this guide will get you started strong.
And don’t worry, if you’re keen to stick with crafting over calculating, we’ll cover the automation out there to handle your Etsy bookkeeping for you.
From which Etsy software to use, how to integrate it and why, you’ll find it all here:
Table of Contents
Ready to nail your Etsy accounts?
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Etsy Bookkeeping vs. Etsy Accounting
New to the world of accounting? You wouldn’t be alone among Etsy sellers - or any ecommerce sellers, for that matter.
There’s no prerequisite for business accounting skills to sell online. And Etsy marketplace tends to attract creatives and makers - not bookkeepers.
So, for that reason, we’ll introduce the newbies here to Etsy bookkeeping vs. Etsy accounting: what these are and how they should impact your business operations.
Bookkeeping and accounting are terms often used interchangeably, but they are not the same thing.
Bookkeeping is the process of recording and organizing financial information.
Examples of bookkeeping tasks:
- Categorizing transactions and mapping taxes.
- Entering sales invoices and bills into your accounting software.
- Reconciling these transactions against payments received and money spent.
- Bringing inventory into stock.
- Using these to generate a balance sheet.
Accounting is more topline. Working with the records kept through bookkeeping, accounting looks at the bigger picture.
Examples of accounting tasks:
- Financial forecasting and planning.
- Auditing your books to ensure they’re accurate.
- Filing tax returns.
- Financial statements and reports.
Your Etsy bookkeeping needs to be consistent and accurate to ensure that your Etsy accounting is reliable.
Having an accountant to help you with either is a huge advantage for any ecommerce seller, but you can automate a lot of the tasks too.
What’s Involved in Accounting for Etsy Businesses
Etsy sellers need to be thorough when it comes to their accounting.
Not only do they have similar costs to other ecommerce sellers to track, like fees, shipping, storage, advertising, sales tax etc, but accounting for their inventory and production is likely to be more complex.
There are numerous factors involved in Etsy shop bookkeeping.
Etsy Accounting Spreadsheets
Opting for a free Etsy accounting spreadsheet might seem like a smart first step for a small business owner with limited accounting skills.
This isn’t entirely untrue, but there are some significant disadvantages to setting up with, and sticking to, using spreadsheets for your Etsy business.
Limitations of Etsy bookkeeping with spreadsheets
In 2003, TransAlta lost $24 million due to an Excel spreadsheet error. Whilst spreadsheets have their uses, they also have plenty of room for error.
In order to use Excel to manage your cash flow, you need to set up a system from scratch that you can use regularly.
This means designing the sheets yourself, or at the very least, manipulating templates for your own business. It also means consistent maintenance and manual updates, ensuring you don’t miss anything (like TransAlta did, causing it to lose millions).
It’s easy to make mistakes
Excel doesn’t know what you’re using it for, and whether your formulas are taking everything into account that they need to.
It can’t flag errors or improvements in the same way that accounting software is designed to. And if you forget to update something, there is no system to remind you.
They’re not scalable
Excel is not designed to handle significant volumes of accounting data, so as you grow, not only will your files be slow and potentially crash, but your margin for error will increase too.
Your business needs will change as it grows. Keeping to spreadsheets excludes you from being able to delegate easy tasks to apps and integrations so that you can spend time on other things.
They’re not the most secure
Whilst you may be able to protect spreadsheets with password encryption, accounting software has more layers of defense.
You can control who sees what in your accounting software, and sharing access is easy.
With spreadsheets, your data may be at risk of being lost, hacked or infected with a virus.
They may cost you more in the end
Even if none of the worst-case scenarios mentioned happen to you, spreadsheets, though free at first, could still cost you greatly in the end.
You may seek the help of an accountant somewhere in your business journey. This might be for help with sales tax on Etsy, interpreting your finances, even selling your business - whatever the reason, they’ll need to see your accounts.
And the longer they have to spend interpreting the numbers, the more they’ll likely charge you. Making it easier for them and for yourself will save you in the long run.
The Best Etsy Accounting Software
Etsy accounting software is all the things spreadsheets are not.
Secure, efficient, automatic, and scalable, it’s good to use it as early in the game as possible so that your reports detail your business’ entire journey.
But with so many options on the market, where do you start? Well, right here.
We recommend three accounting software partners for Etsy sellers: Quickbooks, Xero and Sage.
Quickbooks for Etsy
At first, this software solution seemed perfectly tailored to Etsy sellers and their needs, but five years on, it appears that sellers mostly prefer other Quickbooks products for their Etsy stores.
Quickbooks Online and Quickbooks Commerce (formerly TradeGecko) are excellent software solutions for ecommerce sellers, and allow more freedom and flexibility than the Self-Employed version. Etsy sellers tend to rate the former options more highly.
Quickbooks Online is a good place for sellers to start. Quickbooks Commerce is a more specialized expansion, offering tools for things like inventory management, manufacturing, warehousing, reporting, and more.
Quickbooks Online reviews from verified review site, Capterra:
Xero for Etsy
Xero is a small business accounting software designed to make things simple.
With plans starting from only $11/month, you can cover the basics first and upgrade as you grow. This is a popular option for sellers just starting out and unsure whether to invest in a full-service accounting software solution.
Xero reviews from verified review site, Capterra:
Sage for Etsy
One of the biggest software providers in the UK, Sage has a wealth of accounting products and software choices for US sellers too.
For ecommerce, a particular favourite is the Sage Business Cloud software.
With a system designed for small, online businesses, the Sage Accounting Start plan is $10/month, with room to upgrade as you grow.
Sage reviews from verified review site, Capterra:
Other Good Etsy Accounting Tools
Once you have your Etsy accounting software sorted, the digital accounting app world is your oyster! Bookkeeping for Etsy sellers needn’t stay complicated, and these apps help take the edge off.
Check out our recommendations for Etsy accounting integration below.
A2X for Etsy
By now you’ve learned, if nothing else, how important it is for Etsy sellers to keep track of their costs.
But when your Etsy settlement statements arrive spanning months and lacking detail, figuring out how much you paid in fees or for shipping, collected in taxes, received for returns, and your COGS, can turn into a time-consuming nightmare.
This is where A2X comes in.
By integrating A2X with your Etsy accounting software and seller account, each of your bank deposits gets its own automatically-calculated journal summary. Every income and expense line is mapped out for you, so that nothing is missed, and you have accurate numbers.
Settlements are split by month and books organized by the GAAP-approved accrual method, giving you month-to-month forecasting data you can rely on.
Etsy tax apps
If sales tax on Etsy worries you, there are apps you can integrate with your accounting software to make things easier.
Apps like TaxJar for Etsy automate the collection and remittance of your taxes, taking into account any deductible expenses, and rate changes per state.
Every US state handles tax differently, so apps like these can help you ensure you meet your obligations selling across the country.
Do You Need an Accountant for Etsy?
There is no legal requirement to have an accountant when you run an Etsy store, but the benefits of working with one can be invaluable.
Ecommerce accounting is quite unique, and having a professional to help you navigate not only your books but the industry too, could save you a lot of time, headaches and money.
A few signs that you might need an accountant for your Etsy store
How do you know when you need a professional?
These signs are a good indication:
Your accounts are taking up too much of your time
If you’re spending ages on your bookkeeping, and still unsure of the results and what to do, you might need help with the next step.
Your systems aren’t scaling to meet your needs
This is related to the above. If your business is demanding too much of your systems and you’re unsure of the solution, a specialist accountant can help you invest in the right Etsy accounting tools.
You sell (or want to sell) on other marketplaces as well as Etsy
Multi-channel selling is becoming increasingly popular to cope with saturated marketplaces. But adding more channels to your business means more complex Etsy accounting, so getting an accountant before it overwhelms you is a smart move - even just to get set up.
You outsource (or want to start outsourcing) aspects of your business
Outsourcing means you have more time to focus on the areas of your business that you enjoy the most, and/or want to grow. But this will add complexity with your accounts, so getting expert advice could save you hugely down the road.
Are you ready to hire a specialist ecommerce accountant?
Optimize Your Etsy Seller Accounting with A2X
Don’t forget to take your Etsy bookkeeping to the next level with A2X for Etsy.
Next in the Series…
This guide is the first part of our Etsy accounting series, within the Ecommerce Accounting Hub.
Next up, we’ll cover your Etsy fees. What they are, how much they are, and how to manage and reduce them effectively.