Ecommerce Accounting in 2025: A Complete Guide for Online Retailers

Running a successful online store in 2025 takes more than great products and clever marketing. Behind every thriving ecommerce business is something even more essential accurate ecommerce accounting.

Whether you’re selling through Shopify, Amazon, Etsy, or WooCommerce, your finances are the only objective truth your business has. But unlike traditional retail, ecommerce accounting involves more moving parts: platform fees, inventory tracking, tax compliance, chargebacks, and real-time payment processing. Without a clear, accurate financial picture, you could be making decisions based on assumptions instead of data.

As ecommerce evolves, so do the demands of staying financially organised. You need to track what’s coming in, what’s going out, and what’s left over with confidence. That’s where this guide comes in.

In this blog, we’ll break down everything online retailers need to know about ecommerce accounting in 2025 starting with the basics, then diving into accounting methods, financial reports, sales tax, software recommendations, and how to make your numbers work for growth.

By the end, you’ll know exactly how to manage your books like a pro or when it’s time to bring in ecommerce accounting experts who can do it for you.

What Is Ecommerce Accounting?

Ecommerce accounting is the process of tracking, organizing, and analyzing the financial transactions that happen in your online business. From recording every sale and expense to calculating profit margins and filing taxes, ecommerce accounting gives you a clear view of your business’s financial health so you can make smarter, data-driven decisions.

While the term often gets used interchangeably with ecommerce bookkeeping, there’s a key difference.

• Bookkeeping is about recording financial data what comes in and goes out.
  
• Accounting is about analyzing that data to understand profitability, manage cash flow, and ensure compliance.
  

If bookkeeping is the “how,” then ecommerce accounting is the “why.”

Why Ecommerce Accounting Is Different

Unlike traditional retail or service-based businesses, online retailers face a unique set of accounting challenges:

• Multiple sales channels (Shopify, Amazon, Etsy, WooCommerce, etc.)
  
• Platform fees, payment processor charges, and foreign exchange differences
  
• Inventory that moves fast—or sits too long
  
• Refunds, returns, chargebacks, and discounts that affect your real revenue
  
• Sales tax liability in multiple states or countries
  
• Digital payments from Stripe, PayPal, Shop Pay, and more
  

With so many moving parts, relying on approximations or manual spreadsheets isn’t just risky—it’s costly.

What Does Ecommerce Accounting Include?

A complete ecommerce accounting setup covers:

• Revenue tracking: From every sales channel and payment processor
  
• Expense tracking: Including platform fees, subscriptions, advertising, and shipping
  
• COGS (Cost of Goods Sold): Calculating the true cost of delivering each product
  
• Inventory accounting: Valuing what’s on hand and what’s been sold
  
• Sales tax compliance: Collecting and remitting the right amount, in the right jurisdictions
  
• Financial reporting: Monthly profit and loss, balance sheet, and cash flow statements
  

When done right, ecommerce accounting gives you not just numbers—but clarity. It helps you understand what’s driving profit, what’s dragging it down, and where you need to focus next.

Cash vs Accrual Accounting in Ecommerce

Choosing the right accounting method is one of the most important decisions you’ll make when setting up your ecommerce accounting system. This choice determines when you record income and expenses—and it can dramatically affect how your financial reports look, how you manage cash flow, and even how much tax you owe.

There are two accepted methods: cash basis accounting and accrual basis accounting. Let’s break them down, especially in the context of ecommerce businesses.

What Is Cash Basis Accounting?

Cash basis accounting records income when it’s actually received and expenses when they’re paid. It’s straightforward and popular with small ecommerce businesses just starting out.

For example, if you sell a product on Shopify in March but don’t receive the payout until April, you’d record the income in April—the month you got paid.

Advantages of cash basis:

• Easy to understand
  
• Matches your bank balance
  
• Suitable for early-stage stores with low complexity
  

Limitations:

• Doesn’t reflect money owed (accounts receivable)
  
• Can make your business appear more or less profitable than it really is
  
• Doesn’t align well with inventory or prepaid expenses
  

In the world of ecommerce bookkeeping, cash basis can create confusion—especially when returns, chargebacks, and delayed payouts are involved.

What Is Accrual Basis Accounting?

Accrual accounting records income when it’s earned and expenses when they’re incurred even if the money hasn’t changed hands yet.

Let’s say you ship a product on March 20 but won’t receive the payout until April 3. Under accrual accounting, the sale is still recorded in March, because that’s when the value was delivered to the customer.

Benefits of accrual accounting:

• Matches revenue to expenses more accurately
  
• Provides a truer picture of profit margins
  
• Required by the IRS if your revenue exceeds $25M over 3 years
  
• Preferred for inventory-heavy businesses
  

Challenges:

• More complex to manage manually
  
• Requires advanced ecommerce accounting software or professional support
  

Which Method Is Right for You?

If your ecommerce store is small, cash basis might work fine in the early stages. But as your operations grow—especially if you carry inventory, manage large ad budgets, or deal with wholesale accrual basis accounting becomes essential.

It aligns better with the way ecommerce businesses operate: delayed payments, returns, chargebacks, and shifting inventory values are all better tracked using accrual principles.

Many online sellers start with cash basis, then switch to accrual as they scale. If you’re not sure, speak with an ecommerce accountant or use accounting software that supports both methods (like Xero or Finaloop).

Ecommerce Financial Reports You Need to Review Monthly

Once your ecommerce accounting system is up and running, the next step is to regularly review your financial reports. These aren’t just paperwork for your accountant or tax season they’re tools to help you make smarter business decisions every month.

Whether you’re selling on Shopify, Amazon, Etsy, or across multiple platforms, there are three essential financial reports that every online business should review monthly: the Profit and Loss Statement, Balance Sheet, and Cash Flow Statement.

Each of these reports offers a different perspective on your financial health. Let’s look at what they are, what they reveal, and how to use them effectively.

Profit and Loss Statement (P&L)

Also called an income statement, your P&L shows your revenue, cost of goods sold (COGS), and operating expenses over a given time period. The bottom line net profit tells you whether your business made money or lost it.

What to look for:

• Gross sales vs net sales (after returns, discounts, and promotions)
  
• Gross profit (net sales minus COGS)
  
• Operating profit (after advertising, software, payroll, etc.)
  
• Net profit (after taxes, fees, and other non-operating expenses)
  

Why it matters:
This is your go-to report for understanding how profitable your ecommerce business really is. It can also help identify high-cost categories, underperforming channels, or seasonal revenue trends.

Balance Sheet

Your balance sheet provides a snapshot of your company’s financial position at a single point in time. It shows what you own (assets), what you owe (liabilities), and what’s left over (equity).

Key components:

• Assets: Cash, inventory, accounts receivable, and prepaid expenses
  
• Liabilities: Credit card debt, unpaid bills, loans, sales tax liabilities
  
• Equity: The net value of your business (assets minus liabilities)
  

Why it matters:
This report shows how stable your business is. It tells you whether you have enough assets to meet short-term obligations and whether you’re building long-term value. If you’re talking to investors or lenders, this is the report they’ll scrutinize first.

Red flags to watch for: Growing liabilities with no corresponding asset growth or negative equity trends over time.

Cash Flow Statement

This report details where your cash is coming from and where it’s going. Unlike your P&L, which includes non-cash items like depreciation, the cash flow statement focuses only on actual money movement.

Break it down into:

• Operating activities: Sales revenue, inventory purchases, ad spend
  
• Investing activities: Buying or selling equipment, software, or property
  
• Financing activities: Loan proceeds, repayments, investor capital
  

Why it matters:
You can be profitable on paper and still run out of money. Cash flow reports ensure you’re not blind to real liquidity issues—especially critical for ecommerce businesses with tight margins, delayed payouts, or heavy upfront ad spend.

✔ Bonus: Reconcile your cash flow with your bank balance monthly. This ensures your numbers match reality—not just your software.

Using Financial Reports for Smarter Ecommerce Growth

Together, these three reports help you do more than stay compliant—they help you run your ecommerce business like a CFO. You’ll know:

• Which products or channels are driving profit
  
• Whether your business is becoming more or less efficient
  
• If you’re on track to meet cash obligations like tax, payroll, or inventory restocks
  

Ecommerce accounting is only as useful as the insights you take from it. Reviewing these financial statements monthly helps you stay in control—and make better decisions faster

What Counts as COGS in Ecommerce (and How to Track It)

If there’s one number that can make or break your profit margins, it’s your cost of goods sold (COGS). In ecommerce, tracking COGS properly is essential—not just for reporting accuracy, but for pricing, forecasting, and understanding how much each sale really earns you.

But what exactly goes into COGS for an ecommerce business? And how does it differ from other types of expenses? In this section, we’ll break it all down and show you how to track it right—whether you’re selling on Shopify, Amazon, or your own website.

What Is COGS in Ecommerce?

COGS refers to all the direct costs involved in producing or acquiring the products you sell. That includes everything needed to move an item from “not yet created” to “in your customer’s hands.”

For ecommerce businesses, COGS typically includes:

• Product purchase cost or manufacturing cost
  
• Packaging materials
  
• Shipping to your warehouse or fulfillment partner (freight-in)
  
• Pick-and-pack or fulfillment center fees
  
• Labeling and assembly costs
  
• Merchant fees (optional, when directly tied to product delivery)
  

These are variable costs, meaning they increase or decrease depending on how much you sell.

What Doesn’t Count as COGS?

A common mistake in ecommerce accounting is lumping everything into COGS. But not all expenses qualify.

Excluded from COGS:

• Advertising and marketing spend
  
• Website hosting or software subscriptions
  
• Customer service and payroll (unless labor is directly tied to production)
  
• Rent, utilities, or general operating expenses
  

Those are classified as operating expenses and are deducted after calculating gross profit.

How COGS Impacts Gross Profit

Your gross profit is calculated as:

Net Sales – COGS = Gross Profit

Let’s say you sell a product for £80 and your COGS is £35 (including product cost, shipping, and fulfillment). Your gross profit is £45.

Gross profit is one of the most important metrics in ecommerce. It tells you how much you have left to cover fixed costs like marketing, software, salaries—and still make a profit.

Tracking COGS: Average vs Actual

Most accounting systems use average cost per unit to calculate COGS. This means your software takes the total cost of an inventory batch and spreads it across all units.

But if your SKUs have different costs (e.g. size, supplier, or production date), an actual cost method is better—especially for high-volume ecommerce.

Some ecommerce accounting tools (like Finaloop or Xero with A2X) can sync COGS at the order or SKU level. This gives you precise insights into:

• Which products are most profitable
  
• Where margins are shrinking
  
• Whether costs are creeping up over time
  

Why COGS Accuracy Matters

If you underreport your COGS, your profit looks inflated—leading to higher tax liability and poor pricing decisions. Overreport it, and your business might seem less profitable than it actually is.

Accurate ecommerce bookkeeping for COGS allows you to:

• Price your products with real margin visibility
  
• Know when it’s time to renegotiate supplier rates or adjust packaging costs
  
• Improve forecasting for inventory and cash flow planning

Inventory & Returns – Tracking Product Movement Correctly

If you run an ecommerce business that carries physical products, your inventory is more than just stock—it’s a major financial asset. And like any asset, it must be tracked, valued, and accounted for correctly within your ecommerce accounting system.

Yet inventory is also where many ecommerce businesses get tripped up. Returns, unsold goods, damaged stock, and fulfillment delays can all distort your numbers if not recorded properly.

Let’s explore how to manage your inventory from an accounting perspective—and how to handle returns without throwing your books out of balance.

Inventory: More Than Just Counting Boxes

In accounting terms, inventory sits on your balance sheet as an asset until it’s sold. Only once a product is delivered to a customer does it become COGS—and move to your profit and loss statement.

Here’s how it works:

• When you purchase inventory, it’s not immediately counted as an expense.
  
• When a sale happens, the cost of that specific item is recorded as COGS.
  
• What’s left unsold stays listed as an asset under “Inventory.”
  

This process helps you maintain accurate gross profit calculations and prevent under- or over-reporting your earnings.

Inventory Valuation Methods

Depending on your setup and region, you’ll use one of the following inventory valuation methods:

• FIFO (First In, First Out): Oldest inventory is sold first
  
• LIFO (Last In, First Out): Most recently purchased inventory is sold first (Not allowed in some countries, including the UK)
  
• Weighted Average Cost: A blended method ideal for ecommerce businesses with frequent reorders
  

Using inventory software that syncs with your accounting platform (like Xero or QuickBooks with A2X) can help automate these calculations and update your inventory accounting in real time.

How to Handle Returns & Chargebacks

Every ecommerce business deals with returns, refunds, and chargebacks. But these customer-friendly policies can wreak havoc on your books if not managed correctly.

Returns:
When a customer returns a product, you need to reverse the original sale and adjust your inventory accordingly. If the product is resellable, it goes back into inventory. If it’s damaged, it may be written off as a loss.

Chargebacks:
When a customer disputes a charge through their credit card company, the transaction is reversed. You’ll lose both the revenue and possibly the inventory—plus be charged a processing fee.

Both scenarios affect:

• Revenue
  
• COGS
  
• Inventory levels
  
• Profitability metrics
  

Dead Stock and Write-Offs

If you have inventory that isn’t moving—whether due to outdated SKUs, seasonal items, or over-ordering—it becomes dead stock.

From an accounting perspective, this may need to be written off if it can no longer be sold. That means removing its value from your balance sheet and recording it as a business loss.

Monitoring inventory turnover and identifying slow-moving SKUs early can help avoid write-offs and preserve cash flow.

Why Inventory Accuracy Drives Better Decisions

Clean, well-managed inventory records are the foundation for:

• Accurate ecommerce financial reports
  
• Efficient reordering and cash flow planning
  
• Properly calculated COGS and margins
  
• Real-time understanding of profit per SKU
  

Without accurate inventory data, your reports become misleading—and your decisions risk becoming expensive guesses.

Ecommerce Sales Tax in 2025 – What You Need to Know

Sales tax is one of the most confusing and constantly changing parts of ecommerce accounting. And in 2025, it’s more complex than ever—especially if you’re selling across borders or in multiple states.

From economic nexus laws to VAT compliance and platform responsibilities, understanding your obligations is critical. Get it wrong, and you could face fines or backdated tax bills. Get it right, and you stay compliant while building trust with customers and tax authorities.

Let’s break down what you need to know.

What Is Ecommerce Sales Tax?

Sales tax is a consumption tax levied on goods and services sold to customers. In ecommerce, this means you may be responsible for:

• Calculating the correct tax amount per sale
  
• Collecting it at checkout
  
• Remitting it to the appropriate authority
  

What makes it complicated is that tax rules vary by country, state, province, and even city.

In the U.S., for example:

• You must collect sales tax in states where you have nexus.
  
• Nexus can be physical (office, warehouse) or economic (based on sales volume).
  

In the UK and EU:

• You must register for VAT if your sales exceed country-specific thresholds.
  
• OSS/IOSS schemes are used for simplified cross-border VAT handling.
  

Economic Nexus Laws

Since the 2018 South Dakota v. Wayfair ruling, states in the U.S. can require online sellers to collect sales tax even without a physical presence—if their sales volume into that state exceeds a threshold.

Common thresholds include:

• $100,000 in sales or
  
• 200+ transactions in a year
  

This means if your ecommerce store sells across multiple states, you may need to register and remit tax in several jurisdictions—even if you’re based in only one.

Sales Tax vs VAT: Know the Difference

If you sell internationally, your ecommerce bookkeeping must handle both systems.

Tools That Automate Sales Tax Handling

Thankfully, there are tools that make this easier. Look for accounting software or integrations that:

• Calculate sales tax or VAT automatically at checkout
  
• Support multi-jurisdiction tax rates
  
• Remit taxes on your behalf (where allowed)
  
• Generate sales tax reports for each location
  

Some examples:

• Shopify Tax for automated compliance within the U.S.
  
• Avalara for global tax automation
  
• Xero and QuickBooks both support VAT and sales tax tracking via app integrations
  

When to Register for Sales Tax or VAT

You’ll need to register if:

• You meet economic nexus thresholds in U.S. states
  
• You hold inventory in a fulfillment center in another state or country
  
• You exceed VAT thresholds in your home country or others where you ship goods
  

Don’t wait until tax season to sort this out. As part of your ecommerce accounting software setup, ensure you:

• Regularly monitor your sales by region
  
• Re-evaluate nexus every quarter
  
• Maintain audit-ready records for at least 5–7 years
  

Tax Filing Deadlines & Common Mistakes

Each tax authority has different filing frequencies (monthly, quarterly, annually). Missing deadlines can lead to fines and interest.

Common mistakes to avoid:

• Collecting tax in a state where you’re not registered
  
• Forgetting to update tax rates or rules
  
• Incorrectly applying tax to non-taxable goods
  
• Not remitting tax on time—even if collected
  

The best practice? Work with an ecommerce accountant or tax advisor to stay ahead of regulations.

Choosing the Right Ecommerce Accounting Software in 2025

The right ecommerce accounting software can turn hours of manual data entry into a smooth, automated process—and give you real-time financial visibility across your business. In 2025, the best tools do more than just bookkeeping. They help ecommerce sellers track sales, manage inventory, calculate tax, and forecast growth—all from one dashboard.

But not all accounting tools are built with online retailers in mind. You need software that integrates with your sales channels, payment processors, and inventory systems.

Here’s how to evaluate your options and choose the best ecommerce accounting software for your needs.

What to Look For in Ecommerce Accounting Tools

As your online store grows, your accounting needs become more complex. To stay ahead, your software should support:

• Multi-channel integration (Shopify, Amazon, WooCommerce, etc.)
  
• Automated reconciliation of bank feeds and payment gateways (e.g. Stripe, PayPal)
  
• Inventory tracking synced with your ecommerce platform
  
• Sales tax or VAT calculations based on region
  
• COGS automation and product-level profit analysis
  
• Custom financial reporting for growth tracking
  
• Multi-currency support, if selling internationally
  

It’s also important the tool grows with you—look for platforms with upgradeable plans and add-ons.

Top Ecommerce Accounting Software in 2025

Let’s explore the leading software options online retailers are using:

1. Xero

A favorite for UK, Australian, and global sellers, Xero offers:

• 800+ app integrations, including Shopify, A2X, Amazon, Stripe
  
• Custom dashboards for ecommerce KPIs
  
• Real-time inventory sync with tracking add-ons like DEAR or Unleashed
  
• Built-in VAT compliance and multi-currency support
  
• Unlimited users
  

Perfect for: Small to mid-size ecommerce brands wanting cloud flexibility and global reach.

2. QuickBooks Online

One of the most popular platforms in North America, QuickBooks offers:

• Direct Shopify integration with the QuickBooks Connector
  
• Automated bank feeds and smart categorization
  
• Sales tax tools for all U.S. states
  
• Strong reporting features
  
• Intuitive mobile app for bookkeeping on the go
  

Best for: Sellers needing robust local compliance and full financial visibility.

3. Zoho Books

Known for affordability and customization:

• Syncs with Shopify, Amazon, and WooCommerce
  
• Offers custom automation workflows
  
• Tracks inventory and orders from within the app
  
• Built-in document management
  

Ideal for: Budget-conscious sellers with complex workflows.

4. A2X

Not an accounting tool itself, but a critical add-on:

• Connects ecommerce platforms with Xero or QuickBooks
  
• Imports sales, fees, COGS, and payouts cleanly and accurately
  
• Essential for high-volume sellers using Amazon or Shopify
  

Recommended as part of your stack—not a standalone solution.

How to Compare Tools: Feature Checklist

Before choosing, compare your shortlist using this feature table:

*Requires inventory add-on for full functionality

Free Trials & Demos

Before committing, take advantage of free trials:

• Xero: 30-day free trial
  
• QuickBooks Online: 30-day trial (or 50% off 3 months)
  
• Zoho Books: Free for small businesses with revenue under $50K
  
• A2X: 14-day trial with full functionality
  

Use this time to test integrations, dashboards, and support response times.

Do You Need a Bookkeeper Too?

Even with great software, ecommerce accounting can still be complex. A cloud accountant or virtual bookkeeper with ecommerce experience can help you:

• Set up your chart of accounts properly
  
• Reconcile high-volume transactions
  
• Manage tax and compliance
  
• Analyze your reports for smart decisions
  

Working with an expert ensures your software is set up correctly—and that your business stays compliant as it grows.

Best Practices for Ecommerce Accounting in 2025

Whether you’re running a startup on Shopify or managing multiple ecommerce storefronts, following solid ecommerce accounting best practices is critical to long-term success.

Think of these practices as your financial hygiene routine—they keep your records clean, your business compliant, and your growth decisions well-informed.

1. Separate Business and Personal Finances

This is the first rule of small business accounting. Use a dedicated business bank account and credit card to simplify bookkeeping and ensure accurate financial reporting.

It also:

• Makes tax preparation easier
  
• Improves expense tracking
  
• Minimises audit risks
  

2. Automate Repetitive Tasks

Modern ecommerce accounting software is built to save time. Automate where possible:

• Bank feed imports and reconciliations
  
• Recurring invoices
  
• Payment reminders
  
• Tax rate updates
  

Automation reduces human error, increases accuracy, and frees up time for strategy and decision-making.

3. Reconcile Your Accounts Weekly

Don’t wait until month-end. Regular reconciliation helps you:

• Catch discrepancies early
  
• Maintain clean financials
  
• Monitor your cash flow in real time
  

Set a weekly schedule to reconcile:

• Bank accounts
  
• Shopify or Amazon payouts
  
• Stripe or PayPal settlements
  

4. Track Inventory as Part of Your Books

Inventory isn’t just a warehouse issue—it directly affects your cost of goods sold (COGS), tax calculations, and profit margins.

Use inventory management tools that:

• Sync with your sales channels
  
• Reflect real-time stock levels
  
• Integrate with your accounting platform
  

If you use Xero or QuickBooks, consider add-ons like Unleashed, DEAR Systems, or Cin7 for advanced inventory tracking.

5. Understand Your Tax Obligations

Sales tax, VAT, GST, and other region-specific taxes can vary significantly. Stay compliant by:

• Registering for tax in the right jurisdictions
  
• Keeping up with changing tax rules (especially economic nexus in the U.S.)
  
• Using tax tools like Shopify Tax, Avalara, or TaxJar
  

Also, file your returns on time—and consider working with an ecommerce tax advisor.

6. Prepare Monthly Financial Reports

You can’t manage what you don’t measure. Review these financial reports every month:

• Profit and Loss (P&L): Are you turning a profit?
  
• Balance Sheet: What do you own vs. owe?
  
• Cash Flow Statement: Can you cover upcoming expenses?
  

These reports provide a complete view of your business health and guide better decisions.

7. Plan for Seasonality and Sales Surges

Most ecommerce businesses see fluctuations—holiday sales, flash deals, or peak shipping seasons.

Use your historical data to forecast demand, adjust inventory levels, and allocate budgets strategically. Your accounting software or advisor can help with predictive planning and budgeting.

8. Back Up Your Data Securely

Your ecommerce data is a valuable asset. Make sure it’s:

• Backed up regularly (daily or weekly)
  
• Stored securely (cloud-based, encrypted)
  
• Compliant with data privacy regulations (like GDPR or CCPA)
  

Bonus tip: Enable two-factor authentication (2FA) on all your accounting and ecommerce apps.

9. Keep Clean Records for at Least 5–7 Years

Regulations vary, but most tax authorities require businesses to keep detailed records for several years.

Your ecommerce accounting records should include:

• Invoices and receipts
  
• Bank and card statements
  
• Tax filings and correspondence
  
• Payroll records (if applicable)
  

Cloud storage, accounting software, or document management tools can help you stay organised.

10. Work With an Ecommerce Accountant

Hiring an accountant who specialises in ecommerce can pay for itself many times over. They can:

• Set up your chart of accounts tailored to online sales
  
• Advise on sales tax compliance
  
• Ensure accurate reporting
  
• Help you scale with confidence
  

As your ecommerce business grows, expert support becomes essential—not optional.

Ecommerce Accounting FAQs for 2025

Still have questions about ecommerce accounting? You’re not alone. Here are the answers to some of the most frequently asked questions from online retailers in 2025.

Q1: Do I need an accountant for my ecommerce business?

If you’re just starting out and using simple tools, you might manage without one. But as soon as your transactions increase, taxes get more complex, or you begin selling internationally, working with an ecommerce accountant is a smart move.

An experienced accountant will:

• Set up your accounting software correctly
  
• Ensure you’re VAT/sales tax compliant
  
• Help you track inventory, COGS, and margins
  
• Support you with quarterly or annual filings
  

Q2: What is the best ecommerce accounting software in 2025?

Top options this year include:

• Xero: Great for global sellers and integrations
  
• QuickBooks Online: Widely used in the US with strong automation
  
• Zoho Books: Ideal for custom workflows on a budget
  
• A2X: Essential add-on for accurate sales + payout sync
  

The best fit depends on your sales channels, volume, tax complexity, and reporting needs.

Q3: How does ecommerce accounting handle inventory?

Inventory directly affects your COGS, profitability, and taxes. Your accounting system should track:

• Inventory levels in real time
  
• Returns and damaged goods
  
• Value of ending stock
  

Most ecommerce businesses use a dedicated inventory tool that integrates with their accounting software.

Q4: What accounting method should I use—cash or accrual?

• Cash basis: Easier to manage, ideal for small startups.
  
• Accrual basis: More accurate, especially if you carry stock or have delayed payments.
  

For tax purposes and financial analysis, accrual is often better for growing ecommerce businesses.

Q5: What does COGS include for ecommerce businesses?

COGS includes all direct costs related to selling your products, such as:

• Product manufacturing or wholesale cost
  
• Packaging
  
• Shipping to customers
  
• Merchant/payment gateway fees
  

It does not include overhead like rent, marketing, or software subscriptions.

Q6: How do ecommerce platforms like Shopify handle accounting?

Shopify provides basic reporting, but not full accounting. You still need a dedicated ecommerce accounting tool or integration (like Xero or QuickBooks) to:

• Reconcile payouts
  
• Handle taxes
  
• Track expenses
  
• Run reports
  

Apps like A2X or the Xero/QuickBooks Shopify connectors fill this gap efficiently.

Q7: How do I manage ecommerce sales tax in 2025?

Sales tax can be complex due to changing economic nexus laws. Here’s how to stay compliant:

• Register in all states/countries where you have tax obligations
  
• Collect the correct tax rate at checkout (platforms like Shopify Tax help)
  
• File returns on time, monthly or quarterly
  
• Use tools like Avalara or TaxJar for automation
  

For UK and international sellers, VAT rules apply—your software should handle country-specific calculations.

Q8: Can I handle ecommerce accounting myself?

If you’re confident with numbers, tools, and regulations—you can manage the basics. But even tech-savvy sellers often outsource:

• Year-end accounts
  
• Tax returns
  
• Payroll
  
• VAT filings
  

Why? So they can focus on growth while staying compliant and financially informed.

Final Thoughts

Ecommerce accounting in 2025 isn’t just about keeping the books tidy it’s about unlocking insights, avoiding tax headaches, and making smart growth decisions.

Whether you’re a dropshipper, DTC brand, Amazon seller, or multi-channel merchant, setting up proper accounting systems early will save you time, money, and stress.

Need help implementing the right setup for your ecommerce business?

Let’s Get Your Ecommerce Books in Order

Contact our team at Cloud Accounting today to speak to an ecommerce accounting expert. We’ll help you choose the right software, clean up your accounts, and give you clarity over your numbers—so you can scale with confidence.