Mastering Shopify Accounting

Mastering Shopify Accounting

Table of Contents

1. Introduction
2. Overview of Shopify and Ecommerce Accounting
3. Accounting Methods for Shopify
   • Method 1: Cash Deposit Method
     • Pros
     • Cons
   • Method 2: Shopify Details Method
     • Pros
     • Cons
   • Method 3: Shopify Accounting Guru Method
     • Pros
     • Cons
4. Method 1: Cash Deposit Method
   • Explanation of Method
   • Pros and Cons
   • Step 1: Sort Bank Deposits
   • Step 2: Code Bank Deposits
5. Method 2: Shopify Details Method
   • Explanation of Method
   • Pros and Cons
   • Step 1: Pull Shopify Details
   • Step 2: Summarize with a Journal Entry
   • Step 3: Code Bank Deposits
   • Step 4: Plug the Difference to Payment Processor Fees
6. Method 3: Shopify Accounting Guru Method
   • Explanation of Method
   • Pros and Cons
   • Step 1: Download Sales Orders Reports
   • Step 2: Summarize and Filter Sales Data
   • Step 3: Enter Journal Entries to Summarize Data
   • Step 4: Reconcile Payment Processors and Bank Deposits
7. Conclusion
8. FAQ

Article

Introduction

In this article, we will explore different methods for accounting for your Shopify channel in your ecommerce business. Accounting for Shopify activity can be complex, but by following specific methods, you can ensure accurate financial data and make informed business decisions.

Overview of Shopify and Ecommerce Accounting

Before diving into the accounting methods, let's briefly discuss Shopify and ecommerce accounting. Shopify is an ecommerce platform that allows businesses to create their online stores and sell products. Ecommerce accounting involves managing financial transactions, tracking sales, monitoring inventory, and analyzing financial data for ecommerce businesses.

Accounting Methods for Shopify

There are three main methods for accounting for Shopify activity: the Cash Deposit Method, the Shopify Details Method, and the Shopify Accounting Guru Method. Each method has its pros and cons, and the most suitable method depends on the size and complexity of your business.

Method 1: Cash Deposit Method

The Cash Deposit Method is suitable for businesses with less than $250,000 in annual revenue. This method offers simplicity and ease of use, making it ideal for new businesses focusing on product development and building demand. However, it lacks detailed information and may result in skewed product margins.

Pros:

• Fast and easy to implement
• Provides a tax-appropriate net income result
• Requires no special skills or extensive learning curve

Cons:

• Lacks detailed information and product margin accuracy
• May overlook some liabilities like sales tax
• Small amount of detail reduces transparency

To implement this method, you sort your bank deposits and code them as sales income in your accounting software.

Method 2: Shopify Details Method

The Shopify Details Method is suitable for businesses with $250,000 to $1 million in annual revenue. This method provides more detailed information and visibility into your business's financial performance. It involves summarizing data with journal entries and coding bank deposits accurately.

Pros:

• Offers a better level of detail and visibility
• Provides accurate sales information and gross profit margins
• Aligns perfectly with Shopify channel data

Cons:

• Requires journal entries and a moderate learning curve
• May still have timing and accuracy issues
• Time-consuming compared to the Cash Deposit Method

To implement this method, you pull Shopify details, summarize them with a journal entry, and code bank deposits to a holding account. You also adjust for any differences and plug them to the payment processor fees.

Method 3: Shopify Accounting Guru Method

The Shopify Accounting Guru Method is suitable for businesses with revenue over $1 million. This method offers the most detailed and accurate financial information, making it crucial for running a profitable business while scaling up. It involves reconciling all payment processors, ensuring accurate margins, and capturing all financial nuances.

Pros:

• Provides complete transparency and accurate margins
• Aligns with audit standards and prepares for acquisitions
• Offers accurate financial data for informed decision-making

Cons:

• Complex and time-consuming, requiring advanced accounting skills
• Has a steep learning curve and may require external help
• Involves reconciling multiple payment processors and extensive data filtering

To implement this method, you download sales orders reports, summarize and filter the data, enter journal entries to summarize, and reconcile all payment processors to bank deposits.

Conclusion

Accounting for your Shopify channel is essential for tracking sales, monitoring profitability, and making informed business decisions. Depending on the size and complexity of your business, you can choose the Cash Deposit Method for simplicity, the Shopify Details Method for moderate detail, or the Shopify Accounting Guru Method for comprehensive and accurate financial data. Each method has its pros and cons, so select the one that aligns best with your business needs and resources.

FAQ

Q: What is the difference between the Cash Deposit Method and the Shopify Details Method?

A: The Cash Deposit Method is simpler and suitable for small businesses with less revenue. It involves coding bank deposits without detailed breakdowns. The Shopify Details Method provides more visibility and summarization of sales information, making it ideal for businesses with moderate revenue.

Q: Is the Shopify Accounting Guru Method necessary for all businesses?

A: No, the Shopify Accounting Guru Method is most suitable for larger businesses with significant revenue. It involves advanced accounting techniques, data reconciliation, and extensive filtering. Smaller businesses can start with simpler methods and transition to this method as they scale up.

Q: How can I ensure accurate financial data for my ecommerce business?

A: It is crucial to implement proper accounting methods, maintain detailed records, and reconcile your financial statements regularly. Utilize ecommerce accounting software, seek professional help if needed, and stay updated on tax regulations and financial reporting standards.

Q: Can I outsource my Shopify accounting to a professional firm?

A: Yes, many accounting firms specialize in ecommerce accounting, including Shopify. Outsourcing your accounting can save time and ensure accurate financial records, allowing you to focus on growing your business. Consider reaching out to professional firms with experience in ecommerce accounting.