Don’t let bookkeeping deter you from making the big step of taking your business online. With the help of an accounting solution, you can continue to grow your business without worrying about the additional admin work.
Lots of Shopify sellers gravitate to Intuit QuickBooks (or QuickBooks Online) to handle their accounting needs. But taking the DIY approach isn’t for everyone. We’ll cover how to use QuickBooks as a Shopify seller and whether a hands off approach is a better fit for your business.
QuickBooks integration for Shopify sellers
QuickBooks offers an integration with Shopify which imports sales and separates both fees and taxes on each transaction.
When you sell on Shopify, you don’t get every dollar from a purchase. Part of each transaction is sales tax and merchant fees. It’s important to stay on top of both. Sales tax needs to be collected and remitted to the state—which given how the sales tax nexus works, is dependent on the state of the purchaser. Merchant fees are a tax deductible expense so every dollar collected by Shopify when processing transactions reduces your tax bill.
To get the integration, add the Shopify Connector app to your account. Once the connection is established, information automatically gets imported and categorized in QuickBooks. It connects deposit information from Shopify with your bank transactions to confirm data from both platforms matches.
The Shopify integration and your accounting method
Before configuring your connection, you need to decide whether your business is operating on a cash or accrual basis.
Using the cash basis, you only record transactions once the money has entered or left your bank account. On the accrual basis, you record the transaction at the point of sale regardless of if money has changed hands yet.
When using Shopify, your sales don’t immediately hit your bank account. You record sales and the money gets transferred at least one business day after Shopify collects the payment.
For example, if you ran a big end of the month promo sale in March and recorded $1,000 in sales on the 31st but it doesn’t hit your bank account until April 1st, the sales are recorded in March on the accrual basis and April on the cash basis.
Most small to medium businesses use the cash basis because it’s less work. But the accrual basis can benefit you if you’re looking for a higher degree of insight and information. When setting up the integration, you choose between recording sales or payouts. Think of this as choosing cash basis (recording just the payouts) or accrual basis (recording the sales as they happen).
Setting up the Shopify integration in QuickBooks
The integration set up takes some accounting knowledge and understanding of how you want to record the data. Essentially, QuickBooks can import every piece of information Shopify records including abandoned and unfulfilled orders. This includes lots of extra reporting information that’s helpful for understanding your sales, but not necessary for your bookkeeping.
While there’s a lot of customization options, we’ll focus on the two prebuilt workflows that are essential to your bookkeeping. The other custom workflows you can modify are great at importing information on stock levels, product types, and in depth sales information which contribute to the understanding of your business, but not tax compliant recordkeeping.
Note: it’s recommended by QuickBooks that you only use one of the following prebuilt workflows. Using both can result in double counting revenue if not set up properly.
When an Order is created on Shopify, create a Sale in QuickBooks Online
This workflow creates a transaction any time a sale is made on Shopify. If on one day you make 100 sales, there will be 100 transactions in QuickBooks Online for that day.
This is necessary for businesses using the accrual method who record sales when they happen as opposed to when they receive the money. It’s also beneficial for businesses that want to use QuickBooks to analyze sales trends on a transaction level.
If you choose this workflow, you must set up:
- Filters for what orders are imported
- How orders are named
- What order information is imported (including discounts, shipping amounts, and customer information)
- Recording taxes and the corresponding tax codes
- Matching products based on name or SKU
Generally speaking, it’s a much more complicated set up process. Doing one step wrong can result in double counting sales, miscounting merchant fees, and incorrectly tracking taxes. Each of these mistakes would result in penalties, fines, and a general misunderstanding of your business’s performance. Follow along with a video walkthrough or QuickBooks’s own set up instructions to ensure you’re doing it correctly.
When a Payout is paid by Shopify, create a Deposit in QuickBooks Online
This workflow creates a transaction any time a payout is initiated by Shopify. If on one day you make 100 sales with a single payout, there will be a single transaction in QuickBooks Online for that day.
This workflow is favored for businesses on the cash basis who care most about tax compliant bookkeeping.
If you choose this workflow, you must set up:
- The income account sales are recorded to
- The expense accounts that fees, taxes, and additional charges are recorded to
- Which bank account sales are recorded in
The Payout workflow is more straightforward of a set up and doesn’t require as much accounting know-how. When done correctly, all the necessary merchant fees and taxes are recorded to the correct account.
Manual monthly QuickBooks adjustments for Shopify sellers
Given that most Shopify sellers do their accounting on a cash basis, we’ll focus on the cash basis accounting process.
Once a deposit hits your bank account, your bookkeeping responsibilities kick in. The amount that’s deposited withholds a portion of that Shopify takes as a payment processing fee and does not account for any refunds. If you sell $120 in products but with an $18 refund and $2 in processing fees, categorizing the $100 deposit as sales doesn’t show the full picture and misses out on tax deductible expenses. How do you record this activity?
With a properly set up integration, this adjustment should be automated. But you still need to know what’s being done so you can review the output to ensure it’s correct.
What if you don’t have the integration? You need to make a manual adjustment monthly. Here’s how:
- Categorize all Shopify deposits in your bank transactions in a balance sheet ledger called “Shopify Holdings”
- Navigate to the “Payouts” section of your Shopify account. Set the date range so the deposits listed in your Shopify account matches the deposits in your bank account (and Shopify Holdings) for the month. You will use this report for Merchant Fees, Sales Income, and Refunds.
- Navigate to the “Finances summary” report and set the date range to the same as the Payouts report you previously used. Shopify Payments in the Payments box should match the Gross Charges shown on the Payouts report. You will use this report for Discounts, Sales Tax Payable, Shipping Income, and Sales Taxes.
- Create a journal entry titled “Monthly Shopify Adjustment.” Using the information on the two reports, fill out the box as shown below using example numbers.
- Review your Shopify Holdings ledger. If done correctly, it should have no balance. If the balance does not zero out, start by checking if you accepted any PayPal payments, reviewing the date ranges of the reports, and checking if any additional unexpected adjustments are made.
Potential pitfalls of DIY bookkeeping to avoid
Doing your bookkeeping is important, but more important is ensuring it’s correct. New business owners often slip up and miss out on key details when getting started.
When you do your own bookkeeping as a Shopify seller, be careful of the following:
- Incorrect QuickBooks account setup: QuickBooks requires an initial setup that is difficult to navigate without some bookkeeping experience. Any incorrect ledgers in your chart of accounts means your reporting is off—an awful discovery when filing your taxes.
- Repeating an incorrect process: Unless you have a professional reviewing your work, it might be wrong without you even knowing it. Someone with expertise guarantees you aren’t making the same mistakes.
- Troubleshooting unbalanced books: Once you get an alert saying your books don’t balance, you’ll want to do whatever you can to make it go away. But taking the wrong approach to fixing it only causes more problems down the line.
- Losing too much time to bookkeeping: As an entrepreneur, your time is money. Spending it in the wrong place hurts your ability to grow your business. It’s important to understand when it’s more cost effective to save your time and hire somebody else.
Why do you need to stay on top of your books as a Shopify seller?
Shopify’s service is an easy way to start an online business or give your business an online storefront. Using their online store building tools, you can start selling online in now time.
If you don’t have a bookkeeping process in place, you could find yourself missing out on tax payments and facing penalties.
Beyond taxes, bookkeeping helps you understand the financial health of your business. Here’s some reasons why you should get your bookkeeping figured out before making your first sale:
- Understanding profitability: Just how viable is your business long-term? The answer lies in your net profit. One quick look at your bookkeeping reports tells you what you’re pocketing from your business.
- Making tax payments: Whether it’s sales tax or quarterly income tax payments, having your books caught up keeps you in the know of how much you owe.
- Avoiding audits: Even small businesses fall into the trap of making a mistake that triggers an IRS audit. If this happens, bookkeeping helps you navigate the experience.
- Getting credit or investments: Need a little cash to reach that next level? Whether it’s a loan from a bank or an investor, they’ll want to see your financial statements before handing you a check.
- Making better financial choices: Those who don’t know history are most likely to repeat it. Your bookkeeping helps you learn from past choices and make better decisions going forward to improve your financial health.
What Shopify sellers need from an accounting solution
All businesses need accounting, but the accounting process and solution look very different based on the business. For Shopify sellers, here are the features you should look for.
Easy to use reporting
You’ll need your reports to understand your cash flow, make budget choices, apply for credit, learn about inventory movement, and measure your success. The best reporting is the reporting you actually use so choose something with reports you can use right off the bat.
Accounting for multiple currencies
Shopify opens up your business to a whole new audience worldwide. Some accounting softwares either don’t work with multiple currencies or charge extra for that feature. Make sure you can account for all the currencies you’re wanting to accept before you start taking payments.
Sales tax calculations
Everyone loves making a sale, but nobody loves tracking sales taxes. Because of how sales taxes must be tracked state-by-state, even smaller operations have complex bookkeeping needs when they sell in a new state. But a good accounting software ensures this is accurately tracked for every state, city, county, or tax body.
Tracking merchant fees
The most common expense for online sellers is merchant fees. These fees—which are taken as part of processing a payment—are impossible to avoid, but the silver lining is they’re tax deductible. Track them to maximize your deductions and better understand your profit margins on a sale.
As you get more familiar with your bookkeeping, you may want to share it with members of your team or access it on the go. A software that stores all your information on the cloud means you can check your reports anywhere at any time. But before you commit, check if the software charges an extra fee to add another user. If you already have a list of people you want to give access to, it can come at a cost.
5 reasons why Shopify sellers should work with a professional bookkeeper
DIY accounting software makes it easier to manage your business finances than the Excel spreadsheets business owners typically get started on. At a point, your business will grow to a point that doing it yourself is no longer an option.
Doing your own bookkeeping is still a large amount of work. Even if you can find the time to tackle it, there are potential mistakes that require a keen eye for details to avoid.
Working with a professional service like our partner Bench takes your bookkeeping completely off your plate. The perks for Shopify sellers include:
1. Unlimited expert support
For the business owner worried about making mistakes, having someone who does the work for you and walks you through the reports keeps you at ease. Your accounting is in the hands of a team of tax and bookkeeping professionals meaning your work is completely outsourced and peer reviewed for accuracy.
2. Intuitive, visual reports
The ability to evaluate your business at a glance is invaluable. Bench’s dashboard includes visual reports that show your profits over time, top expenses, and cash flow trends. Less time fact checking means more time analyzing the numbers and making smart, informed decisions that help your business grow.
3. A truly automated bookkeeping process
Even if you use an integration to automate importing information, it’s still your responsibility to review the data regularly to ensure it’s accurate. With Bench, not only is the work being done for you, but it’s peer reviewed every month for consistency and tax compliance.
4. A tailor made experience
From the moment you join, Bench works with you to understand your business and the regular transactions you make. Your bookkeeping team tailors your experience such that it’s consistent and accurately reflects the nuance of your business.
5. Year-round tax planning support
From the day you join, you get access to our tax professionals to help you plan smart moves that minimize your tax bill. Come year end, we do tax preparation and even filing on your behalf. This year-round support turns tax season from panicked preparation to complete peace of mind.