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Raise your hand if you’re guilty of this…
Whenever you do your bookkeeping, you categorize all of those Shopify payout deposits into your bank account as a generic “Sales/Revenue” transaction.
Are you raising your hand??
If so, let’s talk about this…
These deposits that are made into your bank account by Shopify (or really, whatever kind of payment processor you use – Square, Paypal, Sezzle, etc…), they’re not just your “Sales”. In reality, these amounts can represent up to 6 separate items. Let’s take a look at each one of these in more detail…
The 6 Components of Your Shopify Payouts
- Gross Sales: this is the full retail purchase price of the product(s) you sold
- Discounts: I’m a fan of recording your discounts separately so you can easily see the breakdown for reporting purposes. This will also allow you to see how much value you are “giving away” each month as it relates to the promotions & sales you run.
- Returns: If returns & refunds are part of your store policy, then I highly recommend you track these separately as well. This will allow you to keep a closer eye on your returns, and spot trends on when or why refunds are increasing.
- Shipping Income: if you do online sales, you may be collecting shipping income from your customers to get your products into their hands. You should be breaking this out separately from your product sales so you can easily compare your shipping COSTS to your shipping INCOME. It will also allow you to easily compare your product income to your product costs (i.e. your cost of goods sold), you can accurately see your profit margins on those products.
- Sales tax collected: the amounts that you collect in sales tax from your customer is NOT your income. It’s the state's income. Therefore, you should not be including these amounts in your total income. These amounts are a liability – meaning it’s money you owe to the state.
- Processing Fees: any time you collect payment other than cash/checks, your payment processor may likely deduct their processing fees before they deposit your money into your account. These fees are deductible business expenses and should be reported as a separate item on your Income Statement.
How to Easily Record Your Shopify Payouts
Instead of breaking out each individual, daily deposit into these 6 different categories, we’re going to use a (MUCH) simpler method. I want you to create a new “bank” account in your bookkeeping records, and you’re going to treat Shopify like a bank. And all the money that flows in and out of your Shopify store is being temporarily held by that bank.
Now, every deposit that comes in to your ACTUAL bank account is just going to be recorded as a TRANSFER from your Shopify account to your actual bank account.
Then, either once a week (my preference) or once a month, you will use a template journal entry to plug in all the total numbers from those 6 components we discussed above into a single entry. At the same time, we’re also going to record your inventory & cost of goods sold adjustment as well, so we can accurately compare your SALES to your COGS for any given period.
If you are NOT doing this…
If you are NOT breaking out your deposits into these separate items, you are in danger of mis-reporting your income, which will result in accurate tax returns.
By breaking out your sales information into these 6 different categories, you will have a greater insight into business financials, and be able to really dial in to what your profit margins are in your business.
I cover this topic in greater detail (along with other bookkeeping mistakes I see retailers make) in my Bookkeeping Made Simple for Boutiques Masterclass that’s available on my website. You can register for it today!
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