Bookkeeping is the foundation of financial management for any online seller. Whether you operate on Amazon, Shopify, Etsy, eBay, or Walmart, maintaining accurate and organized financial records is essential for understanding your business, paying taxes correctly, and making informed decisions. This guide will introduce you to the essential bookkeeping concepts every online seller needs to know to get started on the right track.
What is Bookkeeping?
Bookkeeping is the systematic process of recording, organizing, and tracking all financial transactions of your business. Every sale, expense, refund, and payment must be documented. Unlike accounting, which analyzes and interprets financial data, bookkeeping focuses on the detailed record-keeping side—the day-to-day transactions that form the foundation for all financial reporting and analysis.
Core Bookkeeping Benefits
- Financial Clarity - Know exactly how much money you're making
- Tax Compliance - Have accurate records for filing taxes correctly
- Business Decisions - Track which products and channels are profitable
- Fraud Detection - Identify unusual or unauthorized transactions
- Growth Planning - Understand your financial position to scale
Core Concepts Explained
Double-Entry Bookkeeping
The most widely used bookkeeping method is double-entry bookkeeping. This method records every transaction twice—once as a debit and once as a credit. This creates a system of checks and balances that ensures accuracy and prevents errors. When you record a transaction correctly using double-entry, your accounting equation stays balanced: Assets = Liabilities + Equity.
For example, when you receive payment from a customer: you record a debit to your Cash account (asset increases) and a credit to Sales Revenue (revenue increases). Both sides of the equation increase, keeping everything balanced.
Debits and Credits
Understanding debits and credits is crucial for bookkeeping. These terms describe which side of an account to record a transaction on:
| Account Type | Debit | Credit |
|---|---|---|
| Asset (Cash, Equipment) | Increases | Decreases |
| Liability (Loan, Credit Card) | Decreases | Increases |
| Revenue (Sales Income) | Decreases | Increases |
| Expense (Advertising, COGS) | Increases | Decreases |
| Equity (Owner's Capital) | Decreases | Increases |
Accounts and Ledgers
An account is a record that tracks transactions for a specific item, like your Cash account, your Amazon Sales account, or your Advertising Expense account. A ledger is a collection of all accounts organized together. Your general ledger contains all the accounts for your business.
For online sellers, you should create accounts for: cash in different banks, each sales channel (Amazon, Shopify, etc.), major expense categories (advertising, shipping, COGS), and liabilities (credit cards, loans). The more detailed your accounts, the better you can analyze your business performance.
Bank Reconciliation
Bank reconciliation is comparing your accounting records with your bank statement to ensure they match. This process catches errors, identifies fraud, and ensures accuracy. Learn more in our detailed Bank Reconciliation Guide.
Daily Tasks
These are the bookkeeping activities you should complete every day to maintain accurate records:
Record Sales Transactions
Every sale on every platform needs to be recorded. In your accounting software, record the date, amount, customer information (if available), and which platform the sale came from. Many modern accounting solutions can integrate directly with your sales channels to automate this.
Track Expenses
Record every business expense as it occurs. This includes product purchases, shipping costs, advertising spend, software subscriptions, office supplies, and everything else. Keep receipts organized—many accounting software now allow you to photograph receipts with your phone for easy tracking.
Monitor Cash Position
Check your bank account daily to ensure deposits match expected sales amounts and to catch any unauthorized transactions. This daily monitoring gives you real-time visibility into your cash position and helps identify issues immediately.
Stay Organized
Record transactions as they happen, not weeks later. Fresh memory leads to fewer errors
Save Receipts
Keep all receipts, invoices, and documentation for at least 7 years for tax purposes
Use Software
Accounting software automates many tasks and reduces manual errors significantly
Monthly Tasks
These essential monthly activities ensure your records stay accurate and you understand your financial performance:
Bank Reconciliation
Compare your bank statement with your accounting records monthly. Identify outstanding checks, deposits in transit, fees, and any discrepancies. This critical process catches errors early. Our complete Bank Reconciliation Guide walks you through the process step-by-step.
Review Profit & Loss
Generate and review your monthly profit and loss statement. This shows whether you made or lost money during the month. Track your gross profit margin and net profit margin to understand your business health. Download our P&L Template to get started.
Categorize Transactions
Review all transactions recorded during the month and ensure they're categorized correctly. If a payment went to the wrong expense category, correct it. Accurate categorization is essential for meaningful financial reports and tax filing.
Monitor Cash Flow
Look at your cash balance trend. Is cash increasing or decreasing? Are there seasonal patterns? Understanding your cash flow helps you plan for slow months and know when you can invest in growth. Use our Cash Flow Template for tracking.
Essential Bookkeeping Tools
Modern online sellers have excellent software options to make bookkeeping much easier:
- QuickBooks Online - Full-featured, integrates with most platforms and banks
- Xero - Cloud-based, excellent for multi-currency and international sellers
- Wave - Free option with basic features, good for startups
- Zoho Books - Affordable with excellent features and integrations
- FreshBooks - Great for tracking invoices and client payments
Most of these integrate directly with your bank and sales channels, automating transaction entry and reducing manual work.
Common Mistakes to Avoid
New online sellers often make these common bookkeeping mistakes:
- Mixing Personal and Business Finances - Keep a separate business bank account
- Ignoring Marketplace Fees - Track all platform fees as expenses
- Not Recording Refunds - Customer refunds must be recorded immediately
- Forgetting Small Expenses - Every expense counts, even small ones
- Skipping Bank Reconciliation - This is non-negotiable each month
- Poor Documentation - Keep receipts and supporting documents organized
Bookkeeping Key Facts
Recommended retention period for bookkeeping records and receipts
Recommended frequency for reconciliation and financial review
Ideal frequency for recording transactions and checking cash
Of small business failures linked to poor financial tracking
Bookkeeping FAQ
While technically possible with spreadsheets, accounting software is highly recommended. It automates many tasks, integrates with your bank and sales channels, reduces errors, and generates reports automatically. Most online sellers benefit significantly from using accounting software.
Many sellers start doing their own bookkeeping. As your business grows and transactions increase, consider hiring a bookkeeper when bookkeeping takes more than 5-10 hours per week or when you're too busy to handle it accurately. This is usually around $5,000-10,000 in monthly revenue.
Keep all receipts, invoices, bank statements, sales records, expense documentation, and financial reports for at least 7 years. The IRS can audit businesses for 3 years normally, but can go back further if they suspect underreporting. Digital storage is perfectly acceptable.
For most online sellers, accrual basis (recording sales when made, not when paid) is better for understanding true business performance. However, many small sole proprietorships use cash basis. Consult with your tax professional to determine which is best for your situation and revenue level.
Create a separate account in your accounting software for each sales channel (Amazon, Shopify, Etsy, etc.). This allows you to track performance and profitability by platform. Many integrations can automatically feed data from each platform into your accounting system.
Record inventory purchases to an Inventory asset account. As items sell, record the cost as COGS (Cost of Goods Sold) expense. The right method depends on your volume and complexity. Read our detailed COGS Guide for comprehensive information on inventory accounting.
Getting Started Today
Start your bookkeeping journey by choosing accounting software that fits your needs, setting up accounts for each category of transactions, and committing to recording transactions daily. Begin with the basics—recording sales and expenses—and gradually add complexity as your business grows.
Remember: good bookkeeping habits now will save you thousands in accounting fees later and give you the financial clarity to grow your business confidently.
Action Items
- Choose accounting software that fits your business needs
- Set up a separate business bank account if you haven't
- Create accounts for each sales channel and expense category
- Start recording all sales and expenses daily
- Set up monthly reconciliation and P&L review reminders
- Download our P&L Template and Cash Flow Template
- Learn about Bank Reconciliation this month