The Comprehensive Guide to Shopify Accounting & Bookkeeping
Starting an online store is within anyone’s reach, but achieving success requires a combination of talent, creativity, passion, and effective financial management.
Successful businesses are built on strong financial foundations, with cash flow acting as the lifeblood that sustains every aspect of the operation. Properly managing and monitoring cash flow is crucial to avoid severe, compounding issues down the line.
In the first instalment of our Shopify Accounting Hub series, we explored the 8 essential setup steps to lay the groundwork for your new venture.
In this comprehensive guide, the second in our Shopify Accounting Hub series, we delve deeper into some of these steps, examining specific software and app options, the unique challenges of ecommerce accounting, and how to maximize the benefits of your chosen technology.
Table of Contents
Ready to dive in? Let’s tackle Shopify accounting and bookkeeping.
What Sets Ecommerce Accounting Apart?
Managing business finances can be a challenge, especially for those new to the industry.
Accurate accounting is crucial for keeping expenses low, margins high, and the tax authorities satisfied. Without these three aspects in check, your business may struggle to thrive.
Ecommerce businesses face additional, unique challenges due to the nature of online sales. Factors such as selling to a global customer base, dealing with multiple currencies and time zones, navigating taxes, and handling fulfillment can complicate the process even further.
To help you understand the complexities of ecommerce accounting, we’ll break down the four key challenges and their respective solutions.
4 key challenges in ecommerce accounting:
Don’t be overwhelmed by these challenges. Our guide is designed to help you overcome them.
1. Unlimited Ecommerce Transaction Volumes
With no set “business hours” and customers shopping from different time zones, online transactions can be continuous and, at times, overwhelming. Managing high volumes of transactions manually can be both time-consuming and error-prone.
Solution: Accounting software automates transaction recording and provides an overview of your financials. A2X’s Cost of Goods Sold (COGS) feature updates your inventory as you sell. For larger stock volumes, consider dedicated inventory management apps that integrate with your accounting software.
2. Inventory management complexity
Managing inventory can be challenging, especially if you sell through multiple channels or use third-party fulfillment services like Amazon FBA. Maintaining visibility over your stock levels is essential to make informed decisions about restocking or adjusting inventory.
Solution: Inventory management apps integrated with your accounting software can help you maintain visibility over your stock levels and automatically update your inventory as transactions occur.
3. Incomplete Information from Shopify Settlements
Your bank deposits aren’t equivalent to profit. Settlement statements may not provide a complete picture of fees, shipping costs, sales tax, and reimbursements for returns. Manually processing these details for each bank deposit can be time-consuming.
Solution: A2X automates this process by breaking down each bank deposit into its various line items and creating journal summaries that are posted to your accounting software. This keeps your books organized and simplifies reconciliation.
4. Complex Tax Obligations during Expansion
Sales tax can be complex, especially when expanding to international markets. Different revenue thresholds and tax rates apply in various locations, and Shopify doesn’t automatically collect or remit taxes on your behalf.
We have an entire guide dedicated to Shopify sales tax which you can check out here.
Solution: Integrate A2X with your accounting software and Shopify store to track sales tax collected for each bank deposit. Tax apps for Shopify can help you collect the correct amounts and remit them to the appropriate authorities. Consider working with a specialist ecommerce accountant to ensure compliance.
Ecommerce and Shopify Accounting Basics
Now that we’ve covered some of the things you need to be aware of when it comes to your Shopify accounting, let’s hit the brakes for a moment.
It’s worth covering the foundation of accounting as a discipline too, so that you can see why certain tools exist for Shopify merchants and what they can do for your business.
What’s the difference between accounting and bookkeeping?
You might find these terms thrown around interchangeably (or at least, it may seem like that to the untrained eye). But they are different things.
Bookkeeping is an accounting practice that consists of recording and organizing financial information. It’s the detail.
Examples of bookkeeping tasks for Shopify merchants would be reconciling your accounts, maintaining balance sheets, and categorizing your transactions.
Accounting is the bigger picture: it involves working with these records to come to conclusions about the health of a business. It’s the overview.
Examples of accounting tasks for Shopify merchants could be tax planning, reports, and filing, forecasting, auditing, and preparing to sell your business if you choose to do so.
Your Shopify bookkeeping must be comprehensive and accurate in order to perform efficient accounting tasks and drive growth.
And that’s what we’re going to look at next: the tools to help you achieve just this.
Shopify Accounting Software
Even if you’re an accounting pro, it’s impossible to get the same level of accuracy and efficiency with spreadsheets as it is with cloud accounting software—not to mention security.
By eliminating the risk of falling behind or missing transactions, accounting software keeps your books up to date, your numbers crunching and your bank deposits accounted for.
Cloud accounting software is also incredibly secure. Information is encrypted, and you can control access levels so that viewing your books isn’t a question of all or nothing.
Why Shopify merchants need to use cloud accounting software
1. Your books stay up-to-date and nothing gets missed.
Keep the numbers crunching in the background 24/7. Your records don’t depend on you making the time to input them manually and correctly every time.
2. Your books are secured by the best encryption technology.
While no method is ever 100% secure, this is the closest you can get. Check out the security measures of the software you’re researching to ensure they meet the highest industry standards.
3. You have an instant visual of your cash flow and bank deposits.
Want to see how you performed last month? Without accounting software, this might consist of a few hours of manual calculations.
4. You have access from anywhere with an internet connection.
If you move around a lot or want to see your accounts on the go, this will be invaluable.
5. You can set access levels for others wanting to view your books.
If you work with an accountant, are looking for stakeholders, or even hire another employee, you can control what aspects of your books they can see.
6. You can add apps and integrations to optimize certain aspects of your books.
If your business needs particular attention with regards to inventory, tax or something else, you can automate this to give you optimized operations without the extra time constraints.
The best accounting software for ecommerce and Shopify
Hopefully, you can see from the above how using accounting software is a no-brainer for any ecommerce business.
With this in mind, let’s explore our top picks for Shopify accounting and what makes them so great. We’ll be focusing on QuickBooks, Xero and Sage.
QuickBooks Online & Shopify
See pricing plans for US merchants here.
Widely rated as one of the top accounting software options for businesses, QuickBooks offers merchants a lot of choice and room to expand.
Its features include basics like an easy dashboard for quick reference of your financials, reconciliation, CRM, estimates and invoicing, and even a client portal.
Then there’s the option for advanced customizable reporting, and data synchronization with multiple other apps and integrations for a customized stack—both within and outside of the QuickBooks product range family.
One of these products is QuickBooks Commerce, an expansion of the accounting platform designed specifically for merchants just like you:
You can find instructions to integrate Shopify and QuickBooks here.
Xero & Shopify
See pricing plans for US merchants here.
Another award-winning accounting software provider, Xero is a fantastic option for ecommerce merchants.
With plans starting small for merchants finding their feet, Xero can grow with you. It’s particularly popular with merchants in Australia, New Zealand and the UK but still boasts around 200,000 users in the US.
With features including all the basics that ecommerce merchants need along with around 160 currencies with automatic conversions and updated rates, you can expand with confidence.
You can find instructions to integrate Shopify and Xero here.
Sage & Shopify
See pricing plans for US merchants here.
See pricing plans for UK merchants here.
One of the top software providers in the UK, but available across the world, Sage can offer merchants access to a suite of apps and integrations to take their books to the next level.
With a dedicated app marketplace, Sage users can easily find compatible and industry-approved options specifically designed to solve their problems.
Join the Sage family for a comprehensive service, plenty of choice and customization, and excellent customer support.
You can find instructions to integrate Shopify and Sage here.
How to choose your Shopify accounting software
You’ve got three great options above, so how do you choose between them?
Think about your business and what it’s current and most likely future needs will be. Are you hoping to expand across other channels? Into foreign marketplaces? Into new product lines or suppliers?
By articulating where you want your business to go, you can nail down which features you’re going to need to get there. And you can use this to check out which software provider will better suit your journey and your bigger picture.
This will also help you plan for the other operational areas you may want to automate through apps and integrations, because there’s no shortage of these for Shopify.
Shopify Accounting Apps and Integrations
Shopify is a playground for ambitious, creative ecommerce entrepreneurs.
With the greatest customization opportunities, the apps and integrations available go well beyond accounting. merchants can level-up shopping experiences using AR, VR and chatbots, and offer customers more ways to pay than ever before.
We go into more detail about this in our blog How to Sell on Shopify in 2022, so right here, we’re staying focused on accounting.
Here are some particularly helpful apps that integrate with your accounting software for the best possible bookkeeping experience.
And bear in mind that many software options will offer multiple features which could include more than one of the below, so it’s always best to plan out everything you might need and see which solutions give you the most for your money.
Connector apps for ecommerce-optimized books
If you’ve learned nothing else so far in this blog, it’s that ecommerce accounting requires a different tack than usual. A2X automates the optimization of your books for ecommerce purposes.
A2X not only ensures that your numbers are accurate, automatically calculated, and organized into your accounting software in summaries that save it from clogging up, but it helps you with the next parts too.
A2X will match its summaries to your payouts so that reconciliation is simply a matter of checking the pair and confirming the match. It splits settlements that span months, keeping your monthly performance easy to track, and it takes future cash flow into the account.
This accrual method of bookkeeping is the most accurate way to forecast and get the most honest view of your business financials. This way, you can keep an expert handle on your financials in a fraction of the time.
You can try it for free today and start automating your Shopify accounting in QuickBooks, Xero, or Sage.
Tax apps for compliance as you grow
We mentioned tax apps under the first section as good solutions to growing tax obligations both within the US and overseas.
These integrate with your accounting software and help you set aside the correct amounts of sales tax. They can also help you automate the entire filing process in some cases, like TaxJar.
Outsourced fulfillment apps and integrations
Keen to save time and have someone else manage your shipping? You can find a range of options on the Shopify app marketplace, all of which can be integrated with your store and ready to go. These suppliers make it easy to automate the distribution of your products.
Remember to have A2X connected to account for the additional costs that come with using a third-party fulfillment supplier.
As a Shopify seller, you also have access to two huge fulfillment networks in the US and Canada: SFN and FBA.
SFN ( Shopify Fulfillment Network) is for merchants to step back from their fulfillment altogether and have the platform manage it for them.
To get a piece of the Amazon FBA action, check out their Multi-Channel Fulfillment Network for non-Amazon merchants.
Inventory management apps for ultimate visibility
We mentioned inventory management in the first section with regards to its challenges for ecommerce merchants.
Whether you outsource your fulfillment or not, if you don’t operate a dropship business model then inventory will be on your tasklist. Apps help ensure that it remains under control and tracked, no matter who fulfils your orders or how many channels you sell across.
QuickBooks Commerce mentioned above has inventory management features built in. But you can find other apps on the Shopify marketplace too.
Think ahead: will you consider multi-channel selling in the future? Perhaps look for software that offers this kind of integration at a later date so that you won’t have to switch up your tech stack.
Other Shopify Accounting Tools
So aside from having a central hub for all your financial operations, are there additional free and simple Shopify accounting tools out there that could be helpful to merchants?
Shopify’s margin calculator
If you’re new to ecommerce and to accounting, you may be looking for help with pricing your products. Shopify has its own margin calculator to help you make smart decisions and ensure profitability.
It’s a simplified version of the process, since it requires you to know the cost of goods sold in order to input one value, but it will help put instant numbers to your ideas:
Make sure you include the final value you paid for an item after things like shipping costs. Here’s an article about COGS, what to include in it and how to calculate it.
Shopify’s CPM calculator
Shopify also provides a simple calculator for advertising costs. Customer attribution counts as COGS, and should be accounted for in order to ensure profit margins are not lost in marketing costs.
Shopify’s discount calculator
If you want to run a sale or special offer, Shopify has this easy discount calculator to help you see the numbers before making a decision.
The A2X Shopify blogs
Here at A2X, we’ve been working with ecommerce merchants for years now. We have learned a lot about what unites them and what makes them unique by their platforms and business types.
Here are just some of the A2X guides that you can find on Shopify over on the blog:
- The Best Products to Sell on Shopify in 2022
- How to Find the Right Themes for Your Shopify Store
- Everything You Need to Know About Shopify Payments
- Shopify SEO Tips
- 15 Actionable Tips to Grow Your Shopify Store in 2021
- How to Cancel, Close or Pause Your Shopify Store
We’ve done the legwork so you don’t have to!
Shopify POS Reconciliation
Shopify is not exclusive to online merchants.
It can also provide a bridge between ecommerce and in-person retail stores through its POS system. This way, physical stores have one accounting hub that unites all aspects of the business.
If you are interested in Shopify POS, check out our dedicated blog for more specialized information:
Next in the Accounting with Shopify Series…
Where do you start when it comes to taxes? Sales tax isn’t the only thing merchants need to worry about when it comes to the IRS, and our next blog explores exactly this.
We’ll cover which Shopify taxes you need to collect and how. Plus, as always, the best automation options to do it for you!