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Bookkeeping for Fashion & Apparel Brands: Step-by-Step Guide

Bookkeeping for fashion brands

Whether you’re a fashion entrepreneur who’s learning to do your own books, or an accountant or bookkeeper looking to specialize in ecommerce, you’ve probably landed on this blog post because bookkeeping for fashion brands can be complicated and time-consuming.

Fortunately, with the right processes and tools, doing the bookkeeping for a fashion brand can be simple – and it will not only help your business remain compliant, but will also enable you to get accurate insights that can help your brand thrive.

Read on for a step-by-step guide to monthly bookkeeping for fashion brands, provided by Dan Luthi. Dan Luthi is a Partner at Ignite Spot, an outsourced accounting firm that works with fashion brands to help them understand their finances and reach their business goals.

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Why does accurate bookkeeping matter for fashion brands?

If you’re a fashion entrepreneur, odds are, you didn’t go into business to work on financial administration all day. However, managing your finances correctly is one of the realities of running any type of business.

Here are a few reasons why accurate bookkeeping is so important, especially for fashion brands.

Maintain tax compliance

Businesses need to keep accurate records and remit tax according to the regulations in the regions in which they sell – which is reason enough to want to do bookkeeping. (Make sure you speak to a tax expert to understand your business’s specific obligations.)

However, tax compliance can be especially difficult (and also, tempting to ignore) for omni-channel fashion brands. Dan explains:

Especially with Amazon, and marketplace facilitators who do a lot of tax management for you, understanding your summaries as a whole is really important.

For example, if you’re selling half of your business through Amazon, and then the other half through Shopify and other sales channels, the states that you’re working with (or provinces, or countries) aggregate all of that sales information together.

And so you have to have visualization of all sales details to make sure that you can stay in compliance on the sales tax side.

Bookkeeping can help ensure you have the visibility you need across all sales channels to remain compliant.

Understand what’s happening in your business

It might sound “fluffy” to say that good data can help you make good business decisions, and that good data starts with bookkeeping, but it’s true!

Bookkeeping might seem like a nuisance right now, but it can actually help you future-proof your business. According to Dan:

Bookkeeping provides the data that’s going to help you make good decisions about your business. It details the financial activities that are flowing through your business on any given day. And if you’re not aware of what’s happening, it can actually cause dramatic issues with your organization later on, especially if you’re trying to scale and grow.

Set up for investment

Up-to-date, accurate bookkeeping enables you to generate a perfect Profit and Loss statement and Balance Sheet, which is what any investor or lender will want to see when evaluating your business.

Dan explains that this is especially important for fashion brands because they often deal with sales tax complexity:

One of the things that I’ve seen more in the last three years from investors looking at ecommerce businesses, or businesses dealing with fashion, is sales tax: they don’t want to come in and have to assume a huge, massive sales tax liability.

They want to know that you’ve taken care of that, because that’s a risk for them that they don’t want to assume if you haven’t prepared for it.

Video tutorial: Monthly bookkeeping for fashion brands

Watch Dan explain each step of the bookkeeping process in our webinar (below). You can also download a customizable checklist that includes each of these steps here.

 

What you need to complete monthly bookkeeping

Before you begin the monthly bookkeeping process for your fashion brand, it’s a good idea to gather all the information you’ll need. Use this list as a guide.

Monthly bank and/or credit card statements

Gather all statements to track the “ins” and “outs” of cash and expenses, and to understand any future liabilities.

Sales channel report/summary

Obtain the reports from your sales platforms to ensure accurate revenue tracking (e.g., Shopify Finance Summary).

Loan transactions (if any)

Review any debts or investments to manage interest and payment schedules.

Merchant account statements (e.g., Afterpay, Sezzle, Klarna, etc.)

This will help you understand where your money is coming from. Check for transactions that have not yet cleared and track expected incoming payments.

Pending payments status

Is there money that you can expect to come in next month that you should be preparing for, but that you sold in the current bookkeeping period?

Bills and/or receipts

Keep detailed records of all business expenses to ensure they are accounted for in financials – e.g., inventory costs, regular business expenses, etc.

Logins to apps

Having a secure list of tools and logins available will make it easier to ensure all necessary details are included in your bookkeeping, and to access any information or details from a particular tool/app.

List of sales processed through traditional AR

To complete bookkeeping, you need to make sure you have data for ALL sales during the bookkeeping period, for all channels.

By “traditional AR”, we mean sending an invoice that someone will pay later (i.e., not an immediate transaction). These types of transactions will likely occur with wholesale or large purchases.

Payroll records

Review payroll information to understand your costs.

Inventory management records (for COGS calculation):

- Product cost catalog

- Units sold by SKU

It’s easy to forget where inventory is stored, especially if your brand is an omni-channel operation. It’s also easy to lose track of records that indicate the costs of materials.

For accurate COGS calculation, gather records of inventory purchases, sales, and shipments to manage stock levels and costs. Include adjustments for units sold and remaining.

Copies of contracts/agreements for wholesale clients

Review all legal documents to ensure upcoming obligations and conditions are met.

Compliance summaries for sales/VAT

Aggregate data from all sales channels to ensure accurate sales tax reporting and compliance. This is especially important if you’re selling on a mix of channels, and on channels like Amazon, which may collect and remit sales tax on your behalf under Marketplace Facilitator obligations.

Note: It’s still up to you to ensure you’re reporting on tax correctly and remitting the proper amount.

 

Steps: How to complete monthly bookkeeping for fashion brands

Note: These steps are designed for businesses using accounting software like QuickBooks Online or Xero, but can also be applied if you’re using a spreadsheet.

Revenue and sales management

1. Send sales/income from A2X to your accounting software for both Amazon and Shopify sales

Instead of manually entering sales data into your accounting software, use A2X to push sales and financial data from various sales platforms (e.g., Shopify, Amazon) into your general ledger (e.g., QuickBooks, Xero).

Here’s a quick overview of how A2X makes it easy to get data from Shopify into QuickBooks Online:

 

2. Record brick-and-mortar store sales directly in QBO

Integrate point-of-sale systems like Square Retail or Shopify POS into your financial software (or, use A2X to do so) to aggregate data from brick-and-mortar and online sales channels, ensuring consistency and accessibility of information.

3. Review Amazon and Shopify sales in their respective finance summaries

Compare financial reports from different sales channels (e.g., Amazon, Shopify) with your internal records in QuickBooks or other accounting software. Make sure that nothing is missing! Check for discrepancies in discounts, fees, and shipping costs to ensure accurate integration and data integrity.

4. Retrieve and record COGS from Shopify; for Amazon, send COGS to QBO from A2X

Cost of Goods Sold (COGS) includes the items that were sold in the same period of the revenue that you’re reporting.

Track and analyze COGS relative to sales to understand profitability. Ensure accurate recording of costs (e.g., $25 per unit) and sales prices (e.g., $75 per unit) so you can assess margins and financial performance.

5. Review returned quantities from all sales channels

Review the returned quantities from each sales channel during the period. This is not only important to get accurate numbers, but also to identify patterns or specific products with high return rates. Use this data to adjust purchasing decisions and potentially revise product designs or quality.

6. Record any promotional activities, such as products sent to influencers

Record the inventory given away for free, the discounts offered, and the products sent to influencers. This information will help you to evaluate the return on investment for these promotions, especially from influencer partnerships, to ensure they are generating sufficient revenue.

Specifically for products sent to influencers, monitor the effectiveness of these promotions in generating sales. Adjust your influencer marketing strategy based on the sales or visibility generated from these partnerships.

7. Check unmatched bank deposits against the Payouts sections in Shopify and Amazon

Investigate any discrepancies between expected and actual bank deposits. This includes identifying reasons for withheld funds or differences due to returns or disputes with platforms like PayPal that might reserve funds.

Having visibility into this will help you understand the implications of transaction holds or reserves on your cash flow. You can then develop strategies to mitigate risks associated with ecommerce platforms that may withhold funds due to high returns or dispute rates.

Expenses and bills

8. Record bills or expenses, including inventory purchases, operational costs, and online platform fees

Record all expenses including inventory purchases, operational costs, and fees associated with online platforms. Use centralized data management to maintain visibility and control over these financial outflows, ensuring all documentation like receipts and contracts are in order.

This is a great opportunity to monitor changes in costs, such as increases in material prices, and adjust strategies accordingly.

9. Allocate/classify bank transactions for all sales channels and operational expenses

Categorize all bank transactions related to sales channels and operational expenses. This includes classifying expenses into appropriate categories such as marketing, inventory, office supplies, and advertising within your Profit and Loss statements.

For fashion brands, it’s especially helpful to track expenses by sales channel (e.g., Shopify, Amazon) to compare performance and optimize resource allocation based on the profitability of each channel.

Bank reconciliation

10. Start bank reconciliation for all accounts to ensure accuracy in financial records

Time to tie everything up! Perform bank reconciliation by clicking ‘Match’ or ‘OK’ in your accounting software’s bank feed to ensure all transactions match your financial records.

This step verifies that all deposits and expenses are accurately recorded, increasing the reliability of your financial data.

11. Reconcile transactions in other payment gateways, including those used in the brick-and-mortar location

Reconcile transactions made through other payment gateways (e.g., tools like Afterpay, that may deduct fees before they deposit in your bank account) and from brick-and-mortar sales.

12. Manage pending payments, chargebacks, and refunds across all sales channels

Review pending payments, chargebacks, and refunds across various sales channels.

This includes identifying any discrepancies in deposits received and ensuring there is clarity on the status of each transaction, which can help you identify if specific products or retailers are frequently associated with financial discrepancies.

Bank reconciliation in QuickBooks Online for fashion brands

Inventory management

13. Review/update product costs, taking into account purchases from different suppliers

Review and update the costs associated with producing your products, considering changes in material costs from different suppliers.

This helps in pricing your products competitively while maintaining profitability. Review these costs monthly to adapt to market changes and optimize pricing strategies for discounts and special offers.

14. Conduct a monthly inventory count and adjust records for the brick-and-mortar location and any stored Amazon inventory

Perform an inventory count each month that accounts for all inventory, including your brick-and-mortar location and any Amazon-stored inventory. This ensures that the number of units available matches what is listed online and prevents over-selling. Accurate inventory counts are crucial for compliance and avoiding customer service issues related to stock shortages.

COGS & Inventory screen in A2X

15. Adjust inventory for shrinkage/losses based on the physical count and discrepancies

Account for any inventory shrinkage or losses during your physical counts, including items that are damaged, returned, or unaccounted for possibly due to theft or giveaways.

Regularly adjusting your inventory records for these discrepancies helps maintain accurate financial and stock data, crucial for preventing profit loss and ensuring business integrity.

Compliance and reporting

16. Review and edit order transactions as needed for Amazon, Shopify, and in-store sales

Regularly review and adjust transactions as needed for accuracy across all sales channels, including Amazon, Shopify, and in-store sales. Address any issues such as cancellations, rush orders not charged, or other discrepancies to ensure all transaction records are correct.

17. Calculate, report, and remit sales tax, considering different online and offline sales jurisdictions

Stay compliant by calculating and remitting sales tax accurately for different sales jurisdictions.

You can use tools like Avalara to track sales across states or countries, monitor economic thresholds for nexus, and file sales tax returns appropriately in each location where you have tax obligations.

18. Record currency conversion gain or loss, especially relevant for cross-border Amazon sales

For cross-border sales, track and record any currency conversion gains or losses. This is crucial for understanding the financial impact of international sales and ensuring that currency fluctuations do not adversely affect your profitability.

19. Review and finalize Profit and Loss Statements and Balance Sheets, integrating data from all sales channels and operational activities

After integrating data from all sales channels and operational activities, review and finalize your Profit and Loss Statements and Balance Sheets. Use this consolidated financial data to assess the overall performance of your business, make informed decisions, and identify areas for improvement across different sales channels.

Example of a Profit and Loss or Income Statement

And there you go! Monthly bookkeeping for your fashion brand is complete.

Adjust these steps as necessary by downloading our free Bookkeeping Checklist for Fashion Brands.


A2X can help make bookkeeping for fashion brands easy.

Try A2X for free!


Are you ready to automate your ecommerce accounting?

Try A2X today
Try A2X for free

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