Bookkeeping and Accounting for Dropshippers

Bookkeeping for dropshipping businesses is markedly different from traditional retail businesses. The key differences arise in areas such as inventory management, sales tax, and overhead costs.

In a traditional retail business, entries for inventory management involve monitoring inventory levels, purchases, sales, and cost of goods sold, which requires an extensive bookkeeping process.

On the other hand, dropshipping businesses do not handle physical inventory, hence entries related to purchase and storage of goods do not exist. The cost of goods sold is directly recorded upon the sales transaction.

Secondly, sales tax varies significantly between traditional and dropshipping businesses. Traditional businesses are subject to sales tax regulations of their geographic location. Whereas, dropshipping businesses may engage with multiple suppliers from various locations, which may alter the complexity of their sales tax obligation.

Lastly, overhead costs in the dropshipping model are typically lower. There are fewer entries for expenses like rent, utilities, and storage, due to the virtual nature of the inventory. This results in its own unique bookkeeping considerations.

Accounting in a dropshipping business comes with a set of unique challenges that you should be prepared for:

• Inventory Management: Despite not having physical control over your stock, correct and up-to-date tracking of goods is vital for accurate financial reporting.
• Managing Supplier Invoices: Juggling multiple vendors may cause complexities as you need to cross-check received goods with billed amounts and identify discrepancies.
• Hidden Costs: Costs like customs duties and shipping fees may not always be clearly outlined by suppliers and could considerably impact your financial projections.
• International Transactions: If you work with overseas suppliers, exchange rate fluctuations and related charges should be factored into your financials.
• Sales Tax: Determining the applicable sales tax can be complicated as it depends on the location of your supplier, your customer, and your own business.

Given these challenges, engaging the services of a designated bookkeeper can be greatly beneficial. They can help ensure accurate financial records, monitor cash flow, and aid in strategic business planning.

Managing sales tax compliance for multiple jurisdictions in dropshipping can be challenging but it's entirely manageable through proper strategies and tools. First, it's important to understand your tax obligations in each jurisdiction you operate in. This includes knowing the tax rates and rules in each of these jurisdictions. Once you have a clear understanding, you can use accounting software specifically designed for multi-jurisdictional tax compliance, like Bench. This software can automate the process of calculating, collecting, reporting, and remitting sales tax for all your transactions. Fourthly, you should conduct regular audits to ensure your compliance efforts are effective. Lastly, consider seeking advice from a tax professional well-versed in multi-jurisdictional sales tax compliance to help you stay in line with changing regulations.

Nope! All bookkeeping is completed in-house.

Your bookkeeper will be your main point of contact, but at times you might hear from another member of your team. This is usually when your bookkeeper goes on vacation, is sick, or otherwise unavailable.

We handle the bookkeeping for you but sometimes we’ll need your input, especially at year-end. On average, expect to spend 15 minutes each month answering questions for your bookkeeper, or uploading supporting docs.