Shopify is truly a great product. They allow ‘wantra’-prenurs to become entrepreneurs. They allow small businesses to flourish. One of the most challenging aspects of Shopify is the accounting piece. Let’s dive into this a bit deeper.
Let’s take a look at a simple Shopify setup. You launch your store. You list your products. Link to your bank account. Hustle to get customers and boom! you get some sales. Now a few days later, you get a deposit in your bank account.
That deposit is really not all the money you received for the sale. Really you received a few percentage points more. To find out what exactly is going on, let’s take a look at the payouts within Shopify. This can be found on your homepage under ‘view payouts’ on the right half of the screen. Now, select the most recent date that matches the amount seen on your bank account.
This will allow you to see the full picture. Shopify keeps some of the money for processing and often times you will see your refunds deducted from a future payout. The key to accounting properly is tracking all those additional expenses and refunds. What good are financial statements if they do not record everything going on in your business?
Let’s take a look at how we can track all the aspects of the transaction. For those using QuickBooks, you would go to ‘item list’ and create three different services; 1) sale of products 2) merchant processing 3) refunds. Sale of products should map to the income item in your chart of accounts, where you record revenue. Merchant processing should map to credit card fees on your chart of accounts (usually under bank fees). Refunds should hit a line item under income titled refunds, usually an income item.
Once done, you have the basic framework for success and need to record your sales. We then want to create a “new customer” where we will track all our Shopify sales. This customer will simply be called Shopify Sales. Under this customer we want to create a sales receipt.
Let’s pull up a recent deposit in Shopify. You will see the three components we added to the item list. Those items are the total sales, credit card fees and refunds. On the sales receipt, the total sales should be positive, the credit card should be negative (subtracted from total sales) and the refund should be negative (subtracted from total sales). The date should be the date in which the majority of the sales took place. Save this sales receipt.
Now, pull the income statement under reports. The sales, refunds, and credit card expenses should now appear on your income statement. If you did this correctly they will map to the correct accounts on this report.You have now properly recorded Shopify sales in QuickBooks! This method can also be used for all other accounting softwares as well.