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Revenue Recognition
Your local accountant does not understand your Shopify Payment Processor Revenues! The deposits that hit your bank account from Shopify Payments, Paypal, Stripe, or other 3rd party processors are not your revenues. Instead,n these deposits are a net number that includes, refunds, chargebacks, credit card processing fees, and potentially other items! Revenue recognition is the most common area in which we notice that most Accountants in (that don’t specialize in Shopify Accounting) make mistakes!
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Inventory Accounting
Did you know that your inventory spend is not always deductible? One of the most common mistakes that we see e-commerce businesses make is assuming that all of your inventory spend is tax deductible. According to the IRS, if you produce, purchase, or sell merchandise, in your business, you must keep an inventory and use an accrual method for purchases and sales of merchandise. In simpler terms, your inventory is nondeductible for accounting or tax purposes until it is actually sold!
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We Understand You and Your Issues!
All of our clients are E-Commerce Entrepreneurs and most of these sellers have direct-to-consumer sales channels including Shopify, Woocommerce, and others. This direct-to-consumer group is very diverse including companies that drop ship, wholesale, warehouse inventory, 3PL inventory, and even Print-on-Demand. These companies also advertise and market across many platforms including Facebook, Tiktok, Bing, Pinterest, Google, Snapchat, and even influencers.
As you likely already know, each of these areas has its own built-in complexities that only an e-commerce accounting firm can truly understand.
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Sales Taxes
As you likely already know but struggle to understand, all direct-to-consumer sellers (including Shopify) need to consider sales tax compliance in all jurisdictions for which you have nexus.
What makes this topic extremely difficult to understand is that online sellers are diverse. Nexus risk and sales tax compliance for a Direct-to-Consumer (D2C) e-commerce seller such as Shopify, WooCommerce, or Click Funnels can be DRASTICALLY DIFFERENT than a Market Place Seller such as Amazon, Walmart, Etsy or eBay.
To further complicate this issue, nexus risk can arise for either business physical presence (such as inventory, employees or office space), or business economic presence such as sales volumes in particular jurisdictions.
Frequently Asked Questions
What is Ecommerce Accounting?
- Traditional accounting tasks focused on a business that has e-commerce sales channels. Three factors make e-commerce accounting more complex than usual
- Cash or bank related activity do not always correspond with revenue related activity. For example, bank deposits from payment processors are ordinarily not revenues, but instead include a combination of merchant fees, refunds, chargebacks, and revenues.
- Accounting for inventory. For accounting purposes, the cost of inventory can only be expensed on the income statement when the individual units are sold. For example, if there are 10 units of inventory purchased, and 2 are sold to customers, then 2 units of inventory are eligible to be expensed on the income statement while the other 8 units are not yet deductible and must be included on the business’s balance sheet.
- For a successful online seller, there is often a very high volume of transactions that need to be accounted for.
What is Shopify Accounting?
Shopify Accounting can be defined as the process of recording financial transactions pertaining to a specific Shopify business. The accounting process includes analyzing, summarizing, and categorizing these transactions for purposes of reporting them to company management, oversight agencies, regulators, and/or perhaps tax collection entities.
Do I Really Need a Shopify Accountant?
It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce and Shopify accounting. In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically. Some of the complexities surrounding Shopify businesses include: Shopify state sales tax collection, bookkeeping for Shopify, payment processor revenue recognition and inventory accounting.
Do I need an e-commerce Accounting Firm?
It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce accounting specifically. In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically. Some of the complexities surrounding ecommerce businesses include: Sales Tax rules, Accounting for Sales, E-Commerce Revenue Recognition, and Inventory Accounting.
Why do my sales per my Quickbooks not match the Shopify Dashboard?
Unfortunately, this means that your Quickbooks revenue recognition is probably not correct. It’s very likely that your local accountant or bookkeeper does not fully understand your Shopify Payment Processor Revenues!
The deposits that hit your bank account from Shopify Payments, Paypal, Stripe, or other 3rd party payment processors are not your revenues. Instead, these deposits are a net number that includes, refunds, chargebacks, credit card processing fees, and potentially other items! Revenue recognition is the most common area for which we notice that most Accountants (that don’t specialize in Shopifying Accounting) make mistakes!
Should I charge sales tax on Shopify?
Sales taxes should be collected if your business entity (which owns your Shopify account) has nexus in a particular state AND is registered to collect and remit sales taxes to that same state. It is important to note that nexus can occur in many states simultaneously depending on the physical location of the business as well as the sales volume in each and every state.
Does Shopify pay sales tax?
Shopify does not pay sales taxes on behalf of the owner of the Shopify account. Shopify allows the business to collect sales taxes from customers, HOWEVER, the Shopify business owner is required to (outside of Shopify) register for sales tax and remit (pay) sales taxes into the appropriate jurisdictions
Chris Rivera, CPA-Founder
Chris founded the E-commerce accountants in 2019 which specializes in tax, accounting, and business structuring for eCommerce companies in Albany, NY, including Digital Marketers, Drop Shippers, Amazon Automation, Amazon FBA, and Internet Coaches/Gurus. Chris works with some of the most high-profile and influential individuals and businesses in the eCommerce space.
Prior to the start of his firm, Chris spent six and a half years with Ernst & Young specializing in tax and accounting for retail consumer products and service companies. During this time, Chris worked entirely with multinational businesses (both public and private) providing services including business structuring, accounting consulting, auditing, tax compliance, and tax planning.
Chris graduated from the University at Albany and is a New York State Certified Public Accountant in Albany, NY.