Doing bookkeeping and accounting for Shopify can sound daunting or tedious. Fortunately, there are a range of easy steps you can implement now that will save you hundreds of hours and dozens of headaches in the long run. These methods are used by the top Shopify businesses to speed up their processes.
Before we get into it, we’ll briefly introduce bookkeeping and accounting. Though the differences are often blurred, bookkeeping generally refers to recording transactions and information. On the other hand, accounting is a more broad term but more specifically involves interpreting and evaluating the information provided from bookkeeping.
In our experience working with both Shopify store owners and accountants who specialise in Shopify, we’ve found that cloud-based software, automation and integrations are fundamental in modern day bookkeeping and accounting. Today, we’ll go through how you can make the most of these technologies.
Digitise your accounting with a cloud-based accounting software
You have the option of doing all your accounting in a basic spreadsheet if that’s your preference. However, if you’re looking to spend less time on accounting, using a cloud-based accounting software is definitely the way to go.
These will help you to do a range of bookkeeping and accounting tasks such as organise transactions, reconcile bank statements, pay bills, manage payroll, digitise documentation, and generate financial statements.
Setting up bank feeds in your accounting software
In the process of setting up your accounting software, you’ll want to apply for a bank feed to import transactions from your bank automatically. This will save you from having to manually import bank statements. The process is slightly different depending on what bank or financial institution you’re with as well as what accounting software you decided to choose.
Store all your documentation digitally
Keeping receipts and accurate records is fundamental to running a business. By digitising all your documents from the very beginning, you make organising them much easier. In the future, you won’t have to dig through a stack of papers to find what you’re looking for. Most accounting software will allow you to upload and store files in the cloud for easy access and sharing.
Connect your Shopify store with an accounting software integration
Fortunately, syncing data from your Shopify store to your accounting software can now be done in a matter of a few clicks. An accounting integration can automate the process of recording sales and payments data, categorising them, and reconciling bank statements.
Our free Shopify + Xero integration, Shopify + MYOB integration and Shopify + QuickBooks Online integration can be set up in just 2-minutes with our Express method. With the Express setup, an invoice with your sales summary is created in your accounting software every day. All payment transactions including gift cards, tips, tax and payment fees are automatically mapped into default accounts.
With Advanced setup, you can choose custom mapping. This is useful if you’re more experienced or are working with a bookkeeper or accountant. Custom mapping gives more freedom such as allowing you to separate sales categories. You can also choose a Guided setup where you can schedule a free 30-minute call with one of our integration experts who will guide and recommend you through the process.
Doing bank reconciliation with an accounting integration
Bank reconciliation is generally one of the most time consuming regular bookkeeping tasks. However, an accounting integration makes the process significantly more efficient. Transactions are automatically matched up for you, meaning you don’t have to check everything manually. All you need to do is click a button to confirm that things balance.
In the rare case that there is a day where your books don’t balance, the integration will automatically show you this. You save time having to figure this out on your own. Then, all you need to do is identify the discrepancy.
Managing refunds with an accounting integration
Both integrations from Shopify to Xero and to QuickBooks Online manage refunds for you automatically. Refunds are recorded as credit notes, including the tax. This means you don’t have to waste time accounting for returns manually.
Wrap your head around your tax obligations
Check your tax settings
Fortunately, Shopify updates default sales tax rates regularly, meaning you don’t have to do much on your own. Of course, taxes will differ depending on where you live. Make sure to check specific laws in your area. For example, in Australia, you do not need to register for GST until your business exceeds a turnover of AUD $75,000, meaning you don’t need to charge GST until then.
There are a few steps you can take to make sure local and remote sales are applied properly.
Understanding import tax
Import taxes are important if you’ll be importing goods from another country, including if you are doing the accounting for a dropshipping business. Make sure to look into what duties and taxes you’ll have to pay for importing goods into your country.
Preparing for tax time
Preparing for tax time will be an ongoing process. First, you’ll want to digitally document all your receipts and other important records throughout the year. If you’re a business owner, a professional accountant can help you to file your taxes and well as figure out what expenses can be deducted as a tax return.
In terms of global sales taxes, they are accounted for automatically with Shopify but they’re not filed or remitted (paid to your government tax agency) for you. Generally, you’ll want to generate a sales tax report to send to your accountant, or you can give your accountant access to your accounting software.
If you haven’t been entering your sales data into your books, you can benefit from our integration’s historical sync feature. This means you can sync all the sales data from the beginning of the current tax period into your accounting software. Then of course, after that, the integration will automatically sync data every day.
Understand how cash flow affects your business
One thing that’s important for business owners in particular is understanding the importance of cash flow. Making sure more money is coming in than going out is crucial. However, the timing of the money makes a huge difference. Managing your cash flow comes down to forecasting expenses and revenue on a weekly basis to see if you can cover your outgoings.
Quick tips for improving your cash flow
- Send invoices as soon as possible
- Pay invoices as late as possible
- Lease over buying when appropriate
- Consider a regular source of income such as subscriptions
- Keep a reserve of cash in a high interest savings account
- Get rid of slow moving stock at a discounted rate
Managing employee payroll and payments
As a Shopify business grows, it’ll likely reach a point where employees or independent contractors are needed. Depending on tax regulations, there will be different methods for managing these people. In general, you have to set up a payroll schedule and withhold taxes for employees, and track how much you’re paying independent contractors. Fortunately, you can handle these tasks in your cloud-based accounting software.
Another part of managing employees is ensuring they’re tracking expenses. Make sure to keep digital documentation of travel expenses, home office expenses, entertainment expenses, gift expenses etc. This administrative process can be streamlined by using an expense management software that integrates with accounting software, i.e. Receipt Bank.
Put in place a monthly review of your Shopify accounting
Make a checklist for month-end accounting procedures
Don’t fall into the trap of letting your books go haywire for months on end. On a monthly basis, you’ll want to go through your books and make sure everything is up to date. Make a checklist of tasks such as reconciling bank statements, checking your inventory and analysing your financial statements.
Analysing your financial statements
Analysing financial statements is often outsourced to an accountant but there are a few basics that are useful for Shopify store owners to understand. Your cloud-based accounting software will be able to generate financial statements automatically. Key reports that you’ll want to understand include your balance sheet, income statement and cash flow statement.
Work with accounting professionals experienced in Shopify
If you’re a Shopify business owner and all this has sounded overwhelming so far, you’re not alone! Many business owners opt for hiring professionals for some or all of their accounting needs. A bookkeeper and/or accountant can really help your business every step of the way, whether that be for writing a business plan, dealing with taxes, or selling a business.
The accounting profession has evolved significantly over the past few years with the rise of online businesses and cloud computing. For business owners using Shopify that are hoping to stay ahead of the curve, it’s particularly important to find an accounting technologist who understands automation and integrations.
We’ve built a directory of certified accounting integrations and automation professionals who know the ins and outs of accounting software, e-commerce software and more. They can put together the right solutions package for you and help you to make the most of each application. Plus, they take a huge weight off your shoulders and drastically cut down the amount of time you spend on accounting.