Shopify Seller Hub

1. Set Up Your Chart of Accounts

Your chart of accounts organizes all financial transactions into categories:

• Revenue Accounts: Gross sales, discounts, refunds, shipping revenue
• Expense Accounts: COGS, Shopify fees, payment processing fees, advertising, shipping costs
• Asset Accounts: Inventory, accounts receivable, bank accounts, Shopify clearing account
• Liability Accounts: Sales tax payable, loans, credit cards

2. Choose Your Accounting Method

Cash Basis: Recognize revenue when money hits your account (simpler for small stores under $5M).

Accrual Basis: Recognize revenue when the sale occurs, regardless of payment timing (required for larger businesses, provides more accurate financial picture).

3. Create a Shopify Clearing Account

This intermediary account records gross sales, refunds, and fees before reconciling to your bank:

1. Record gross sales → Clearing Account
2. Deduct refunds → Clearing Account
3. Deduct Shopify fees → Clearing Account
4. Deduct payment processor fees → Clearing Account
5. Net deposit transfers to Bank Account

Understanding Nexus

Nexus means you have a connection to a state and must collect sales tax there. You have nexus if:

• You have a physical office, warehouse, or employee in that state
• You exceed the state's economic threshold ($100,000 sales OR 200 transactions in most states)
• You use a fulfillment center in that state (like ShipBob, ShipMonk, etc.)

Configuring Shopify Tax Settings

1. Go to Settings → Taxes and Duties
2. Click on United States
3. Click Add tax rate for each state where you have nexus
4. Enter the correct state tax rate (verify with state tax authority)
5. Add county/local rates if applicable
6. Save settings

Important: Shopify DOES NOT automatically collect sales tax. You must manually enable it for each state. You must also REGISTER for a sales tax permit in each state BEFORE collecting tax.

Running Sales Tax Reports

1. Go to Analytics → Reports
2. Under "Finance," select Tax Finances Report
3. Select your date range (typically quarterly)
4. Export the report (CSV or PDF)
5. Review total sales, taxable sales, and tax collected by jurisdiction

Top Shopify Accounting Software Options

1. QuickBooks Online (Most Popular)

• Cost: $30-200/month depending on plan
• Best For: Stores doing $100K-$10M annually
• Integration: Direct Shopify app or use Link My Books/A2X for automation
• Pros: Industry standard, full-featured, excellent reporting
• Cons: Learning curve for beginners

2. Xero (International Favorite)

• Cost: $13-70/month
• Best For: International sellers, UK/EU/AU based stores
• Integration: Direct Shopify app or Link My Books
• Pros: Cleaner interface than QBO, better bank reconciliation
• Cons: Fewer US tax features than QuickBooks

3. Link My Books (Automation Tool)

• Cost: $15-50/month
• Purpose: Automatically sync Shopify orders to QuickBooks or Xero
• How It Works: Creates summary invoices breaking down sales, refunds, fees, and taxes
• Why Use It: Saves 10-20 hours/month vs manual entry

Setup Steps (QuickBooks + Link My Books)

1. Sign up for QuickBooks Online
2. Install Link My Books app from Shopify App Store
3. Connect Shopify store to Link My Books
4. Complete guided setup wizard (maps accounts correctly)
5. Link My Books auto-creates summary invoices daily/weekly
6. Review and approve automated entries monthly
7. Reconcile bank accounts as usual

Profit & Loss Statement (P&L)

Shows revenue, expenses, and net profit over a period (monthly/quarterly/annually).

Key Metrics to Track:

• Gross Revenue: Total sales before any deductions
• Net Revenue: Revenue after refunds and discounts
• COGS: Cost of products sold
• Gross Profit: Net Revenue - COGS
• Operating Expenses: Shopify fees, payment processing, ads, shipping, software
• Net Profit: What you actually keep after all expenses

Balance Sheet

Snapshot of your business's financial health at a specific date. Shows:

• Assets: Cash, inventory, accounts receivable, equipment
• Liabilities: Loans, credit cards, sales tax payable, accounts payable
• Equity: Owner's investment + retained earnings

Formula: Assets = Liabilities + Equity

Cash Flow Statement

Tracks how cash moves in and out of your business. Critical for:

• Ensuring you can pay bills on time
• Planning inventory purchases
• Avoiding cash crunches during slow seasons
• Making expansion decisions

Tracking Cost of Goods Sold (COGS)

COGS = Product cost + Inbound shipping + Quality control + Returns + Restock

Every product should have a tracked unit cost. Shopify doesn't automatically calculate this—you must enter it:

1. Go to Products → Select Product → Cost per item
2. Enter the total unit cost (wholesale price + all fees)
3. Shopify will auto-calculate gross profit margin on sales

Inventory Valuation Methods

• FIFO (First-In-First-Out): Oldest inventory valued first. Best for perishables & trending products.
• LIFO (Last-In-First-Out): Newest inventory valued first. Tax advantage in inflation.
• Weighted Average: Average cost of all units. Most straightforward for smaller stores.

Common Inventory Mistakes

• Not tracking damaged or returned goods
• Forgetting to include shipping-in and quality control costs
• Keeping inventory "forever" without write-offs
• Not reconciling physical stock with Shopify records quarterly

Weekly Shopify Payments Reconciliation

Shopify holds payments and deposits them weekly (usually Monday-Friday). Here's how to reconcile:

1. Open Shopify Admin → Finances → Payouts
2. View your deposits and expected payouts
3. Compare Shopify payout report to your bank deposit
4. Verify Shopify fees were deducted correctly
5. Investigate any discrepancies immediately

Understanding Shopify Fees Breakdown

Your net deposit = Gross Sales - Refunds - Payment Processing Fee - Shopify Fee

• Payment Processing Fee: 2.9% + $0.30 per transaction (Shopify Payments)
• Shopify Monthly Fee: Divided daily in payouts ($29-$2,300/month)
• App Charges: Deducted from next payout
• Chargebacks: Deducted + $15 chargeback fee