Ecommerce Bookkeeping 101: A Step-by-Step Guide for Small Businesses

Why Good Bookkeeping Matters for Ecommerce Businesses

Accurate bookkeeping allows you to:

• Understand your true profitability
• Track cash flow in real time
• Prepare for tax obligations (like GST)
• Make better business decisions
• Secure funding or investment
• Prevent costly mistakes
• Build a sustainable, saleable business

Without a reliable bookkeeping system, your business could be flying blind. Proper bookkeeping gives you a true financial dashboard to navigate growth.

Step 1: Set Up Your Financial Systems Properly

Before transactions start rolling in, it’s critical to set up your systems right.

a. Open a Business Bank Account

Separate your business and personal finances. This keeps your bookkeeping clean and avoids confusion at tax time. It also helps you manage cashflow because you always know how much cash the business actually has available, without needing to mentally subtract personal transactions. This helps you make better decisions about spending, saving, or investing back into the business.

b. Set Up Shopify Payments and Other Gateways

Ensure you connect payment gateways like Shopify Payments, PayPal and Afterpay properly. Each payment gateway should ideally have its own clearing account in Xero to track deposits and fees accurately.

c. Connect Shopify to Xero

Use an integration tool like A2X. A2X automatically posts summaries of your Shopify payouts to Xero, including sales, fees, shipping income, refunds, and GST breakdowns. This saves hours of manual reconciliation and ensures accuracy.

d. Set Up Receipt Management

Use tools like Hubdoc to capture and store your receipts digitally. This ensures you have a complete record for audits and deductions.

Step 2: Understand Your Chart of Accounts

A clear, organised chart of accounts in Xero is crucial for categorising transactions properly. Setting this up correctly from the start will help you generate more meaningful financial reports later.

Here is a link to download our custom chart of accounts template for ecommerce companies.

Tip: Don’t overcomplicate your chart of accounts. Too many categories can make reporting messy and harder to interpret.

Step 3: Reconcile Regularly

Reconciliation means matching your Xero transactions with your Shopify payouts, bank deposits, and payment processor statements.

Tips for Smooth Reconciliation:

• Reconcile at least once a week to avoid a backlog.
• Use A2X to automate Shopify settlements into Xero.
• Match payment processor clearing accounts monthly.
• Watch out for Shopify merchant fees and refunds.

Accurate reconciliation ensures you’re not overstating or understating income and expenses. Errors in reconciliation can lead to false profits and incorrect BAS lodgements.

Common reconciliation issues:

• Timing differences between sales and payouts
• Holding reserves by payment processors
• Foreign currency transaction adjustments

Fix these early to avoid messy year-end surprises.

Step 4: Track Inventory Properly

Inventory management is a major challenge for eCommerce businesses.

Options for Inventory Tracking:

• Simple Tracking: Track opening stock, purchases, and closing stock annually for tax.
• Advanced Tracking: Use apps like Cin7, Ordertime or Unleashed that integrate with Shopify and Xero for real-time inventory tracking.

Key Inventory Tips:

• Regularly perform stock counts
• Adjust inventory values in Xero at least monthly for accurate COGS
• Ensure COGS is correctly recorded

Pro Tip: Even if you don’t use a full inventory app, regularly adjusting your inventory asset account in Xero is important for accurate COGS reporting. Without it, you might overstate your profits and pay too much tax.

Step 5: Understand GST and Tax Obligations

If you’re an Australian ecommerce business with over $75,000 turnover, you’re required to register for GST.

Key GST Tips:

• Ensure Shopify and A2X are set to capture GST correctly.
• Set up tax codes properly in Xero (e.g., GST on income, GST on expenses, GST free).
• Lodge Business Activity Statements (BAS) quarterly.
• Keep digital receipts for all expenses.
• Track GST on international sales correctly (exports are GST-free).

Common GST Mistakes:

• Forgetting to report overseas sales correctly
• Not capturing GST on shipping income
• Incorrectly claiming GST credits on non-deductible expenses

Missing GST obligations can lead to penalties, so set aside your GST portion regularly.

Bonus Tip: If you import goods, don’t forget about the Import GST (Deferred GST) which must be reported in your BAS.

Step 6: Create Financial Reports You Understand

Financial reports aren’t just for your accountant. They help you run a better business.

Essential reports to review monthly in Xero:

• Profit and Loss Statement: See your revenue, costs, and profit.
• Balance Sheet: Understand your assets, liabilities, and equity.
• Cash Flow Summary: Monitor money moving in and out.
• Accounts Receivable and Payable Reports: Track who owes you money and who you owe.

Tip: Set up custom reports in Xero to track key areas like advertising spend as a percentage of revenue, gross profit margins, and top-performing sales categories.

Benchmark Your Performance: Compare your margins and expenses to industry averages to spot early signs of issues.

Step 7: Stay Consistent

Bookkeeping isn’t a “set and forget” task. Regular upkeep saves time and prevents small issues from becoming major problems.

Consistency Checklist:

• Reconcile weekly
• Review financial reports monthly
• File digital receipts continuously
• Check inventory adjustments quarterly
• Plan for taxes year-round
• Schedule quarterly meetings with your bookkeeper or accountant

By maintaining a consistent schedule, you’ll always know where your business stands financially.

Step 8: Consider Hiring a Professional

As your business grows, managing bookkeeping internally may not be the best use of your time.

Signs You Need Professional Help:

• You spend more than 5 hours a week on bookkeeping tasks
• You’re unsure how to categorise certain transactions
• Your BAS or tax returns are becoming complicated
• You want to improve profitability but don’t have financial clarity

Hiring a bookkeeper or accountant who specialises in eCommerce businesses and understands Shopify and Xero will save you time, reduce errors, and give you access to better financial insights.

What to Look for in an Ecommerce Bookkeeper:

• Expertise with Shopify, Xero, and A2X
• Understanding of GST for eCommerce
• Knowledge of inventory management
• Ability to produce clear financial reports
• Willingness to provide proactive advice

Common Bookkeeping Mistakes to Avoid

• Mixing business and personal expenses
• Not capturing all payment processor fees
• Missing GST on international sales
• Ignoring inventory adjustments
• Leaving reconciliation until year-end
• Failing to account for merchant reserves
• Claiming incorrect GST credits

Avoiding these mistakes saves you time, money, and stress.

Conclusion: Set Yourself Up for Growth

Good bookkeeping is an investment, not a chore. With Shopify, Xero, and a tool like A2X working together, you can automate much of the grunt work and keep your finances clean and scalable.

Taking the time to set up strong financial systems and maintain them regularly allows you to:

• Understand true profitability
• Make informed business decisions
• Identify growth opportunities early
• Avoid tax-time chaos
• Build a business that’s attractive to investors or buyers

If you’re ready to grow your eCommerce business without financial headaches, start by setting up your systems properly, staying consistent, and regularly reviewing your numbers. Your future self will thank you.

Need help setting up Shopify, Xero, or A2X for your eCommerce store? Reach out to our team for a consultation and get your books in order for sustainable growth!