Bookkeeping for online sellers

If you sell online, you've probably looked at a deposit from Shopify or Amazon and thought, "okay, that's what I made this week."

It isn't. And that one misunderstanding is behind most of the messy books we see from online sellers.

A payout is not revenue

When Shopify, Amazon or Etsy sends you money, the number that lands in your bank is what's left after a bunch of things have already happened to it:

• the sales themselves
• minus refunds
• minus the platform's fees (transaction fees, payment processing, listing fees, ads you bought through them)
• plus or minus sales tax, depending on who's responsible for it
• sometimes minus a reserve the platform is holding back

So a $1,000 deposit might actually be $1,180 of sales, minus $40 of refunds, $95 of fees and $45 the platform is holding back as a reserve. If you book the $1,000 as income, your revenue is understated, your fees vanish, and your tax numbers are wrong. Your profit might come out roughly right by accident, but you can't see why, and you can't deduct fees you never recorded.

The fix is to book every payout as its parts: gross sales to revenue, fees to an expense, refunds against sales, and tax to wherever tax belongs.

Let the payout come back to zero

Here's a trick bookkeepers use that makes online selling much easier to keep straight: a clearing account for each platform.

Sales go into it. Fees and refunds come out of it. The deposit to your bank comes out of it too. When everything's recorded properly, the clearing account comes back to zero after each payout.

If it doesn't hit zero, something's missing. That's the whole beauty of it: the math tells you when you've made a mistake, instead of you finding out at tax time.

Sales tax is its own animal

Sales tax is the part of online selling that surprises people most.

On marketplaces like Amazon and Etsy, the marketplace usually collects and pays the sales tax for you in most states. It shows up in your data, but it isn't your money and it isn't your liability. It should net out to zero in your books.

On your own store (Shopify, your own website), you are usually the one responsible. The tax you collect is money you're holding for the state. It is not income, and you'll have to pay it over.

And once you're selling a meaningful amount into another state, you can owe that state sales tax even if you've never set foot there. That's called economic nexus, and the thresholds differ by state. Keep an eye on where your orders ship. It's much better to notice you're close to a threshold than to get a letter.

Know what your products actually cost

If you hold inventory, "profit" means very little until you know your cost of goods sold: what the stuff you sold actually cost you.

Selling a $40 hoodie feels great. Selling a $40 hoodie that cost you $22 to make, $6 in platform fees and $5 to ship, leaving you $7, is a different conversation. Track the cost of each item, and let that cost come off the books as each one sells. Then your profit and loss tells you which products are actually earning their shelf space.

A monthly routine that works

You don't need to do this daily. Once a month:

1. Bring in every payout from every platform, broken into its parts.
2. Check that each platform's clearing account came back to zero.
3. Match each deposit to the line in your bank feed.
4. Look at your fees as a percentage of sales. If that number creeps up, you want to know.
5. Glance at which states you're shipping to.

An hour a month, and your books will actually answer the question every seller cares about: am I making money, and on what?

How Neo-Capital handles it

Neo-Capital connects to Shopify, Amazon and Etsy (Etsy is in beta) and brings in each payout already split into its sales, refunds, fees and tax. Every payout has to add up to the actual deposit before it comes in, and it pairs with the matching line from your bank. Don't want a live connection? Drop in the platform's export file instead and it's sorted the same way.

On Pro and Firm, inventory tracks your costs and posts cost of goods sold as you sell, and the nexus tracker watches your sales against every state's threshold, with Shopify orders feeding straight in.