Shopify Accounting 101: Start-to-Finish Guide for 2025
Most Shopify store owners struggle with accounting because they don't understand the payout system, fee structures, and timing differences between sales and cash flow. This comprehensive guide walks you through setting up proper Shopify accounting, from choosing the right software to automating reconciliation, so you can track real profitability and avoid tax-time surprises.
Look, I've been in the ecommerce game long enough to know that most founders are flying blind when it comes to their finances. You're crushing it on sales, your Shopify dashboard looks amazing, but then you sit down to actually understand your numbers and... it's a mess.
The problem isn't that you're bad at business. It's that Shopify accounting is genuinely complicated, and nobody talks about it until you're already knee-deep in problems.
I'm going to walk you through exactly how to set up your Shopify accounting so it actually makes sense. No BS, no theoretical stuff—just the system I wish someone had shown me when I started.
Why Your Current Setup Probably Sucks
Here's what I see happening with 90% of Shopify stores:
You're looking at your Shopify sales dashboard and thinking you made $10k this month. But then you check your bank account and there's only $8.2k. Where did the other $1.8k go?
- Shopify took their cut
- Stripe grabbed their fees
- That refund from last week just processed
- Sales tax you collected but haven't paid yet
Meanwhile, your "accounting" is a Google Sheet that you update... sometimes. And tax season? Good luck.
Real talk: If you're using basic spreadsheets for a store doing more than $10k/month, you're setting yourself up for major headaches. The complexity scales faster than you think.
The Foundation: Picking Software That Won't Fight You
I've used pretty much every accounting platform out there. Here's what actually works:
QuickBooks Online: The Safe Choice
This is where most people start, and honestly, it's not a bad choice. The Shopify integration is solid, and if you ever need to work with a bookkeeper or accountant, they all know QuickBooks.
The good: Works with everything, lots of tutorials, your CPA won't hate you
The annoying: Interface feels like it's from 2015, reporting could be better
Best for: You want something that just works and don't mind paying $30-50/month
Xero: The International Play
If you're selling internationally or planning to, Xero handles multi-currency way better than QuickBooks. Plus, the app ecosystem is actually pretty good.
The good: Clean interface, great for international business, solid automation
The annoying: Learning curve if you're coming from QuickBooks
Best for: International stores, people who care about having nice-looking software
Bookkeep: The Shopify Specialist
This isn't traditional accounting software—it's specifically built to connect Shopify to QuickBooks or Xero. If you're doing serious volume, this is a game-changer.
The good: Handles all the Shopify complexity automatically, super accurate
The annoying: Another monthly fee ($19-199/month), requires QuickBooks or Xero
Best for: Stores doing $50k+/month who want their accounting to be bulletproof
Setting Up Your Chart of Accounts (The Right Way)
Most people mess this up because they either make it too simple or way too complicated. Here's the setup I use:
Revenue Accounts
- Shopify Sales - Your gross sales
- Shipping Revenue - What customers pay for shipping
- Other Revenue - Gift cards, other random income
Expense Accounts
- Cost of Goods Sold - What you paid for the products
- Shopify Fees - Monthly subscription, transaction fees
- Payment Processing - Stripe, PayPal, etc.
- Shipping Costs - What you actually pay to ship
- Marketing - Ads, influencer payments, etc.
- Software & Tools - Apps, email marketing, etc.
Assets
- Inventory - Current value of unsold products
- Shopify Receivables - Money Shopify owes you (from sales not yet paid out)
The key is keeping it simple enough that you actually use it, but detailed enough to understand where your money goes.
The Payout Problem (And How to Handle It)
This trips up everyone. You make a sale on Monday, but Shopify doesn't pay you until Wednesday. Meanwhile, you're trying to figure out if you're profitable.
Here's how the money actually flows:
Day 1: Customer buys something for $100
Day 1: Shopify shows $100 in sales
Day 1: Stripe takes $3.20 in fees
Day 3: You get $96.80 in your bank account
Most people record the $96.80 when it hits their bank. That's wrong. You need to record the full $100 sale when it happens, then track the $3.20 fee separately.
How I Record Shopify Sales
When the sale happens (not when I get paid):
Debit: Payment Processing Fees $3.20
Credit: Sales Revenue $100.00
When Shopify pays me:
Credit: Shopify Receivables $96.80
Inventory: The Thing Everyone Ignores Until It's Too Late
If you're not tracking inventory properly, your profit margins are basically made up numbers. Here's what you need to know:
Cost of Goods Sold (COGS)
This should include:- What you paid for the product
- Shipping to get it to you
- Any customs/import fees
- Packaging materials
When to Update Inventory Values
- Every time you receive new stock
- Every time you sell something
- Monthly physical counts (yes, actually count stuff)
- When products get damaged/lost
Most people just guess at their inventory value. Don't be most people.
Automation That Actually Saves Time
I'm all about automation, but you have to do it smart. Here's what's worth automating:
Level 1: Basic Connection
Connect Shopify directly to QuickBooks or Xero. This handles the basic sales recording and is better than manual entry.Level 2: Bookkeep Integration
If you're doing serious volume, Bookkeep is worth every penny. It automatically:- Splits out all the fees correctly
- Handles refunds and chargebacks properly
- Reconciles everything daily
- Gives you actual profit numbers
Level 3: Inventory Automation
Tools like Cin7 Core or Katana can sync inventory between Shopify and your accounting software in real-time. Game-changer for multi-location businesses.The Monthly Process I Actually Follow
I used to try to do this weekly, then daily. That's overkill. Monthly works if you set it up right:
- Download Shopify payout reports
- Check that bank deposits match Shopify payouts
- Review any refunds or chargebacks
- Update inventory counts for top-selling items
- Categorize any weird expenses
- Run P&L and look for anything suspicious
Takes me about 2 hours now. Used to take all day.
Numbers You Should Actually Pay Attention To
Stop obsessing over revenue. Here are the metrics that matter:
Gross Margin %
Revenue minus COGS, divided by revenue. If this is under 40%, you have a pricing problem or your costs are too high.Net Margin %
What's left after ALL expenses. Should be at least 10% for a healthy business.Inventory Turnover
How many times per year you sell through your inventory. 6-12x is good for most products.Cash Conversion Cycle
How long from when you buy inventory to when you get paid. Shorter is better.Good Numbers
- • Gross margin: 50%+
- • Net margin: 15%+
- • Inventory turns: 8x/year
- • Cash cycle: <30 days
Warning Signs
- • Gross margin: <30%
- • Net margin: <5%
- • Inventory turns: <4x/year
- • Cash cycle: >60 days
Common Mistakes That Will Cost You
Recording Gross Instead of Net Sales
Shopify shows you gross sales. Your bank account gets net sales (after fees). Record both correctly or your margins will be wrong.Mixing Personal and Business Expenses
I know it's tempting to buy that "business lunch" on your personal card. Don't. Keep everything separate.Ignoring State Sales Tax
If you hit economic nexus in a state (usually $100k in sales), you need to collect and remit sales tax there. Ignoring this gets expensive fast.Not Backing Up Your Data
Shopify, QuickBooks, your bank—they all have data. But if something goes wrong, you want your own backup. Export reports monthly.When to Get Professional Help
You should hire a bookkeeper when:- You're doing $50k+/month in sales
- You have employees
- You're selling in multiple states
- You're preparing for funding
- You just hate dealing with numbers
- You're doing $100k+/month
- You need tax strategy (not just filing)
- You're planning to sell the business
- You're getting audited (obviously)
Tools I Actually Use
Accounting: QuickBooks Online
Still the standard. Works with everything.Shopify Integration: Bookkeep
Worth every penny if you're doing volume.Banking: Mercury
Built for online businesses. API integrations are solid.Expenses: Ramp
Automates expense categorization. Saves hours.Reporting: Fathom
Connects to QuickBooks, gives you actual business intelligence.What's Next?
If you're just starting out: Pick QuickBooks Online, set up the basic Shopify connection, and commit to monthly reconciliation. Don't overcomplicate it.
If you're scaling: Add Bookkeep, get serious about inventory tracking, and start looking at cash flow forecasting.
If you're already big: You probably need a dedicated finance person. The tools can only take you so far.
The key is starting with good fundamentals and adding complexity only when you need it. Most people do it backwards—they try to build the perfect system and never actually track anything.
Just start. Your future self will thank you.
FAQ
Q: How often should I reconcile my Shopify accounts? A: Monthly is fine for most businesses. Weekly if you're doing huge volume or have cash flow issues.
Q: Should I track inventory if I'm dropshipping? A: You still need to track COGS, but inventory tracking is less critical since you don't hold stock.
Q: What if my accountant wants to do everything manually? A: Find a new accountant. Anyone not using automation in 2025 is wasting your money.
Q: How do I handle returns and refunds? A: Record them as contra-revenue (negative sales), not expenses. This keeps your gross margin calculations accurate.
Q: Can I switch accounting software later? A: Yes, but it's a pain. Better to pick the right one from the start. Most data can be migrated, but you'll lose some historical detail.
