Get it right and you know your real margin per product, which platform actually makes money, and how much tax you owe in each state. Get it wrong and your books show a profitable business that's actually losing money on half its SKUs.
This guide covers what e-commerce sellers need to track and why each category matters.
1. Gross sales, not net deposits
The first mistake most new e-commerce sellers make: recording the net deposit from their platform as revenue. That's wrong, and it hides the cost structure of the business.
What actually happens with most platforms:
- A customer pays $100 for a product
- Stripe, PayPal, Square (or the platform's internal processor) takes a fee — say, $3
- The platform takes its cut — say, $5
- $92 hits your bank account
If you record $92 as revenue, you've hidden the $8 in fees and understated your gross sales. Worse, you've made your sales tax calculation wrong (sales tax is on the gross, not the net).
The right approach: record gross sales as revenue, and record each fee category as its own expense line. Your accounting software needs to be configured for this, and most e-commerce sellers benefit from a connector tool (A2X, Bookkeep, or similar) that automates the breakdown.
2. Platform-by-platform separation
If you sell on multiple platforms, your books should let you see each one separately:
- Shopify revenue, Shopify fees, Shopify net
- Etsy revenue, Etsy fees, Etsy net
- Amazon revenue, Amazon FBA fees, Amazon referral fees, Amazon net
- Direct sales, payment processing fees, direct net
Without this separation, you can't tell which platform is actually making you money. A seller doing $200k on Amazon and $50k on Shopify might be making more profit on Shopify if Amazon's fees are eating margin.
Most accounting software (QuickBooks, Xero) handles this with classes, locations, or tags. Each platform gets its own tag, and your P&L can filter by tag.
3. Inventory
Inventory is where most e-commerce bookkeeping goes off the rails.
Two methods:
Periodic inventory. Count inventory at month-end, calculate cost of goods sold (COGS) as beginning inventory + purchases - ending inventory. Simpler but less precise.
Perpetual inventory. Track inventory in real-time as items are sold. More accurate but requires tighter integration between your platform and bookkeeping.
For most small e-commerce sellers, monthly periodic counts work. For larger sellers (multiple SKUs, multiple warehouses, or Amazon FBA), perpetual tracking through dedicated inventory software becomes worth it.
Either way, the key principle: inventory is an asset until it sells, then it becomes an expense (COGS). Treating every purchase as an immediate expense throws off margin calculations and creates wild swings in monthly profit.
4. Sales tax across states
E-commerce sales tax is the most complicated part of e-commerce bookkeeping, and the rules keep changing.
The basics:
- Nexus — a connection to a state that requires you to collect sales tax there. Created by physical presence (warehouse, employee) or economic activity (typically $100,000+ in sales or 200+ transactions in the prior year, varies by state).
- Marketplace facilitator laws — most states require platforms (Amazon, Etsy, eBay, Walmart) to collect and remit sales tax on your behalf for sales made through the platform. Shopify and your own website are different — you're typically responsible for those.
- Multi-state filing — if you have nexus in multiple states, you may need to register and file in each one.
Your bookkeeping needs to track:
- Sales tax collected by the marketplace (already remitted by them)
- Sales tax collected by you on direct sales (you remit)
- Tax obligations by state
This is one of the few areas of bookkeeping where the wrong setup creates real liability. If you should be collecting sales tax in a state and aren't, you're personally on the hook.
5. Returns and refunds
Returns happen. The bookkeeping question is how to record them.
Two approaches:
- Contra-revenue. Returns reduce gross sales as a negative line item. Net revenue = gross sales - returns.
- Expense. Returns recorded as a refund expense.
Contra-revenue is more accurate and standard for e-commerce. It shows true net revenue and lets you track return rates as a percentage of sales — which matters for some product categories.
The COGS side is also important: when an item is returned and restocked, the COGS recorded at sale needs to reverse. When an item is returned and not restocked (or comes back damaged), the COGS stays but you may need a separate write-off entry.
6. Shipping income and shipping costs
Most e-commerce sellers charge customers for shipping and pay carriers for shipping. Both need to be tracked:
- Shipping income (what customers paid for shipping) — usually recorded as revenue or as a separate category
- Shipping costs (what you paid USPS, UPS, FedEx) — recorded as an expense, often broken out from COGS
Some sellers absorb shipping costs into product price; others charge separately. Either way, knowing your real shipping cost as a percentage of sales matters for pricing decisions.
7. COGS by SKU (if you can manage it)
For sellers with multiple products, knowing total margin is good. Knowing margin per SKU is much better.
If your inventory system tracks cost per unit (and it should), every sale should record:
- Revenue from the sale
- COGS from the inventory that was sold
- Gross profit per item
This is the foundation of good e-commerce decision-making. Which products actually make money? Which ones look profitable but lose once you account for fees, shipping, and returns? Without per-SKU tracking, you're guessing.
Most accounting software handles this if you set it up; many e-commerce sellers don't bother and lose visibility as a result.
Cash vs. accrual for e-commerce
E-commerce businesses typically run better on accrual accounting because of inventory. Cash basis works for service businesses where there's nothing to track between purchase and sale. With inventory, you need to match the cost of goods to the revenue from selling them — and that only works on accrual. (More on cash vs accrual →)
For small e-commerce sellers under the IRS revenue threshold, you can sometimes elect cash basis, but most CPAs recommend accrual for the visibility.
Common mistakes
The patterns we see most often in e-commerce books:
- Recording net deposits instead of gross sales
- No inventory tracking, treating all purchases as immediate expenses
- No platform separation — can't tell which channel is profitable
- Sales tax confusion — over or under-collecting
- Forgetting marketplace-collected sales tax shows up differently in books
- No SKU-level margin tracking
- Not accounting for returns and refunds properly
- Mixing personal and business spending on the same card
Most of these are setup problems, not ongoing discipline problems. Once the books are set up correctly with the right tools, e-commerce bookkeeping is manageable.
Recommended tooling
For most small e-commerce sellers, a reasonable stack:
- QuickBooks Online or Xero as the core accounting platform
- A2X, Bookkeep, or similar as a connector to break out platform deposits into gross sales, fees, and tax
- Inventory management through the platform itself (Shopify, etc.) or dedicated software (Cin7, DEAR, etc.) for larger sellers
- TaxJar, Avalara, or Anrok for multi-state sales tax compliance if you have nexus in multiple states
The stack matters more than the individual tools. Picking individual best-in-class platforms that don't talk to each other is usually worse than picking middle-of-the-road platforms that integrate well.
Frequently asked questions
No — only states where you have nexus (physical presence or economic threshold). Marketplaces handle their own sales tax in most states under marketplace facilitator laws, but direct sales through your own site are your responsibility.
Shopify's reports are useful for sales-side visibility, but they're not bookkeeping. You need actual double-entry accounting software (QuickBooks Online or Xero) for tax filing, financial statements, and proper bookkeeping.
Recording net platform deposits as revenue instead of recording gross sales and breaking out the fees separately. This single setup error hides cost structure, breaks sales tax calculations, and makes per-product margin invisible.
Monthly at minimum, but weekly for higher-volume sellers. The longer transactions sit uncategorized, the harder reconciliation becomes — especially when platform fees, sales tax, and inventory adjustments all need to be sorted out.
Where to start
E-commerce bookkeeping is harder than most service-based small business bookkeeping. The good news: once it's set up right, it runs smoothly. The bad news: setting it up wrong creates problems that compound over time.
SoFlo360 helps e-commerce sellers set up bookkeeping that handles multi-platform sales, inventory, sales tax, and platform fees correctly. Spanish-friendly support is available for owners who'd rather handle financial conversations in Spanish.
Book a free consultation or learn more about our bookkeeping services.