Shopify bookkeeping boils down to tracking four key elements:  sales, expenses, inventory, and taxes. 

Sales

• Record all the details of each sale from all sources. 
• Categorize sales made through credit cards, PayPal, and other payment gateways separately.
• Integrate your Shopify accounting software with your Shopify store and set up automatic data imports for your sales information.

Expenses

• Record all the details of each expense.
• Keep your own records of all receipts, invoices, and bank statements.

Inventory

• Set up an inventory tracking system to manage purchases, sales, and adjustments. Apply a consistent valuation method, like FIFO, LIFO, or Average Cost.

Taxes

• Correctly calculate, collect, and remit sales tax based on your location and your customers’ locations. Ideally, use accounting software that automates most of it.
• Accurately track business income for correct income tax filing.
• Consider consulting a qualified tax professional specializing in ecommerce if you face complexities in tax regulations, deductions, and filing requirements.

Managing Shopify Payments and Fees

Shopify Payments is an all-in-one payment processing service. If you opt to use it, you can avoid third-party transaction fees, but Shopify Payments has its own fees:

• Credit card fees – usually higher for international credit cards.
• Transaction fees – depending on:
  • Whether the credit card is issued in the same country or region as your store. Domestic transactions usually have lower fees.
  • Your Shopify plan – higher tiers usually offer lower transaction fees.

Shopify charges a transaction fee for using third-party payment gateways on top of the fees charged by the gateway itself.

When you accept payments in a currency different from your payout currency, Shopify will charge a conversion fee in addition to the regular transaction fee.

Recording Fees

Use accounting software to record all your Shopify charges in a dedicated expense category. Separate entries by fee type and capture the transaction date and amount for each one.

Impact on Your Business

Choose the Shopify plan that fits your sales volume and minimizes transaction fees. Factor Shopify fees into your product pricing calculations. Weigh the pros and cons of offering various payment methods.

Handling Sales and Discounts

Track the details of every promotion you run. Include the name, active dates, the type and discount offered, and the products or collections included.

Track all associated costs, too, like marketing and advertising, and creating promotional materials. If you’re offering free shipping for promotional sales, track that cost compared to regular shipping rates.

Use your accounting software to track sales data throughout the promotional period. Use tags to distinguish discounted from regular sales. Make sure you record the discounted amounts as your sales revenue, not the regular product price. 

Impact on Revenue Tracking and Profitability Analysis

Even for discounted items, you must record the full cost of goods sold (COGS). This gives you an accurate calculation of your profit margin. Then, when the promotion ends, you can generate campaign performance reports using your accounting software. 

Compare your total sales revenue with the COGS and promotional costs. This is how you assess the campaign’s effectiveness.

Shopify and Sales Tax Compliance

Choose your accounting software based on the features it offers. Prioritize seamless integration with Shopify, automatic sales data import, easy expense tracking, inventory management, and customizable reporting. 

Prepare your chart of accounts. You need a consistent way of categorizing all the details of your income and expense transactions. Set up an inventory management system to keep tracking and valuation consistent, too. 

Connect your accounting software to your Shopify store and automate as much as you can. This includes automatic data imports, recurring transactions for predictable expenses, transaction import and categorization, and inventory data transfer.

Create a schedule for recording and reconciling transactions, ideally, every day. You can reconcile bank statements monthly if your sales volume isn’t too high.