5 Accounting Basics That Will Help You Grow Your Shopify Store

5 Accounting Basics That Will Help You Grow Your Shopify Store

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You took the leap and launched a business. Since then, you’ve likely experienced it all: the highest highs and the lowest lows. As your business started to gain traction, I’ll be willing to bet that the amount of paperwork you have to deal with started to grow too.

By now, you might be considering shoving all your receipts into a shoebox and handing it to an accountant. Not a bad a idea, but there is a better way. The following five accounting basics will give you insight that will help you grow your business year-round—with or without an accountant.

1. Update Your Tax Settings

When you create a Shopify store, your tax rates are automatically set up based on your address and the countries you ship to. However, as your business grows, you need to make sure that all your rates are up-to-date.


This is especially true if you expand internationally. If you're selling online, anyone in the world has access to your products. It's up to you to decide where you'll ship them. As you expand, make sure to set up a tax rate for each country you ship to.

Tax Exceptions

As your business grows, you’ll also likely add new products and collections. The challenge is that some products have tax exceptions. The best way to apply an exception is to implement a tax override.

If you're not sure which tax rate you need to apply to your products, you can reach out to your local chamber of commerce or taxing authority. 

2. Integrate Your Accounting Software

From choosing a business name to making your hundredth sale, solid accounting becomes more important every step of the way. To make this easier, Shopify has built apps to integrate your store with popular accounting software packages.

If you choose the QuickBooks Online integration, for example, your sales will be automatically exported into QuickBooks Online and deposits and payouts will be recorded into your bank account. This saves a lot of time by cutting out manual data entry.

Browse Apps

Integrating with an accounting software app will help you keep track of everything that’s going on with your store, no matter how big it gets. If you already work with an accountant or bookkeeper, you can give them access to your sales reports and accounting app using a staff account so you don’t have to share credentials. 

3. Use Reports to Track Cash Flow

Once you've synced your store with your accounting software, you'll be able to generate several reports that will help you figure out how money is flowing in and out of your business.

Sales Tax Report

See how much tax you’ve collected, and how much you owe. With this report, you can make sure that you you have enough money in the bank for tax season. It will also help you make sure that the tax rates you applied to your products comply with local regulations.

Inventory Valuation Report

Get a snapshot of your inventory, including quantity and costs. This way you can answer questions such as, “What’s the total value of my inventory?” Solid inventory management is hugely valuable because it can help you identify slow moving items that affect your cash flow—and your ability to grow.

Cash Account Report

Check the balance of your cash account and compare it to what it is actually in the bank. Even with the best intentions, it's easy for money to go unaccounted for. For example, you could forget to record the invoice after making a purchase. If this happens to you, try and work backwards to figure out what wrong. 

4. Keep On Top of Profit

Once you know where your cash is going, it's still important to know how profitable your business is. Money in the bank doesn't necessarily mean profit—especially if you have a lot of bills owing.

Using the profit and loss report, you can find out what your major costs are, and how much money you have left over. 

Cost Of Goods Sold (COGS)

Cost of goods sold refers to expenses that are directly associated with your product. Most often, this either means products that are purchased wholesale, or raw materials that go into producing a product.

Many people—including bookkeepers—think that COGS is equal to the invoices received from vendors during the year. It is not.

When you purchase a product or material, you are exchanging money for inventory. It is only when you sell the item that you recognize its cost. This can have a drastic effect on your bottom line.

Let’s say you have no inventory to start with, but spend $150,000 buying inventory that you plan to sell for $300,000 (a 100% markup). If your only sell $100,000, your COGS will be $50,000. The remaining $100,000 in unsold product will be recorded as inventory.

If instead, you record the entire $150,000 as your COGS, your business will show a negative gross margin, and of course, no inventory. That's just not accurate.

Your accounting software will calculate your cost of goods sold for you, but here's the basic formula.

Opening Inventory + Purchases  Ending Inventory = COGS

Gross Margin

To calculate your gross margin, subtract your COGS from your revenue. This number is important because it will help you define how much flexibility you have with pricing and what kinds of promotions you can afford to run. Keep in mind, this only accounts for costs directly related to your product. 

Sales — COGS = Gross Margin

Net Profit

Your net profit is the money you have left over after paying all of your other expenses, such as advertising or office supplies. Your bank account does not reflect net profit so it's important to use your accounting software to figure it out. 

Gross Margin — Operating Expenses = Net Profit

For example, imagine you calculate your profit and loss and it shows that you made a profit of $50,000 but you only have $10,000 in the bank. The remaining $40,000 might be reflected in inventory or major equipment purchases.  

5. Plan Ahead for Tax Deadlines

Every year, it comes again: Tax Season. After the rush of holiday sales comes the frantic preparation for tax season. Frankly, this can become a very time-consuming task.

The best way to avoid getting overwhelmed is to know beforehand what you need to hand in and when. Below are some of the most important filings for US and Canadian businesses.

If you live outside Canada or the US, you will likely be able to find the requirements on your local government's website. When in doubt, check with a local accountant.

Corporate Tax Returns

In Canada, corporations must file a T2.

In the US, there are two types of corporate filings. The first is an 1120, commonly called a C Corp, and the other is an 1120S or S Corp. The type of filing you need to do depends on how your company is incorporated. If you're not sure, check your incorporation documents. 

Individual and Partnership Tax Returns

If you're Canadian, self-employment income is reported on lines 135 to 143 of your income tax and benefit return.

In the US, you need to look into forms 1040 and 1065. Sole proprietors will list all of their business income on a Schedule C of the 1040. Partnerships will complete the 1065 return, which is similar to the 1120 form that corporations file.

Note: You must complete an individual tax return, whether your business is incorporated or not. If your business is required to file a 1120S or a 1065, you will still need to report your net profit on the 1040. Everyone in the US must report income whether they are paid by an employer or are self-employed. 

Finally, regardless of your business's status, if you paid over $600 to a contractor in the previous year, you will have to complete a 1099 form.

Whether it was financial freedom, control over your time, or just the entrepreneurial bug that led you to open your Shopify store, you did it! Paying attention to the numbers will pave the way to long-term success. Even better, it will help you avoid scrambling to put everything together at tax time!

shopify-author William English

About The Author

William English is an Intuit Premier Reseller and Shopify Partner based in San Diego. He has been working with QuickBooks since the very first version. You can link your Shopify account to Quickbooks in the Shopify App Store.

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