The Complete Guide to Ecommerce Accounting in 2025

Many online sellers struggle with ecommerce accounting. This is because unlike traditional accounting, they have to track revenue across multiple sales channels, handle more complex tax regulations, and reconcile payments. Without proper accounting, they risk inaccurate financial records and tax penalties.

Ecommerce accounting ensures that every transaction from multiple sales channels is appropriately recorded. This helps businesses stay compliant and make data-driven decisions.

In this guide, we will explain why traditional retail accounting practices no longer apply and explore the key components of ecommerce accounting. This guide also provides an in‐depth look at the methods and best practices for helping businesses thrive in a competitive digital marketplace.

Why do traditional retail accounting practices not effectively work for ecommerce?

Traditional retail accounting processes help business owners with physical stores manage their financial transactions and track income and expenses. It relies on in-person transactions and fixed inventory. 

Ecommerce accounting involves tracking transactions across online sales channels such as eBay, Amazon or Shopify and receiving payments from online payment platforms like Stripe, Google Pay or PayPal.

Here are reasons why traditional accounting can’t apply in ecommerce.

• Multi-channel sales complexity: In traditional retail accounting, you  track sales at a single location, often through a point-of-sale (POS) system. In contrast, ecommerce businesses sell on multiple sales channels , such as Shopify, Amazon, eBay, and Walmart. Each channel has with invoice reporting formats. For example, Shopify invoices encompass listing items sold, sales tax, and shipping costs while Amazon invoices often include additional details such as distinct sections for fulfillment fees, referral fees, and other charges related to the use of Amazon’s logistics and marketplace services. Reconciling sales across multiple marketplaces is thus tedious and prone to errors.
  
  
• Inventory management challenges: Brick-and-mortar stores maintain inventory in a single location. In contrast, ecommerce businesses often store stock in multiple warehouses or third-party fulfillment centers (e.g., Amazon FBA) or operate via drop shipping. This makes inventory valuation and tracking the cost of goods sold (COGS) more complex. It requires advanced inventory management systems. And the lack of them results in overstocking or stockouts.
  
  
• Sales tax compliance across Jurisdictions: Retail businesses collect local sales tax at checkout. But ecommerce sellers, when selling across different states and countries, must navigate different tax regulations. Without an  accounting software or a bookkeeper, keeping track of changes, accounting for sales tax in the overall sales can be time-consuming.
  
  
• Payment processing and payout delays: Physical stores receive immediate cash or credit card payments. Ecommerce businesses, on the other hand, rely on payment processors like PayPal, Stripe, and Amazon Pay. These deduct transaction fees and hold funds before payout. Such delays complicate cash flow management and require automated accounting solutions to reconcile payments accurately.
  
  
• Lump sum payments in ecommerce: In traditional businesses, payments are simple, with fixed amounts and dates. However, in ecommerce, online marketplaces and payment processors often combine multiple transactions into a single lump sum payout, usually deposited every two weeks. This complicates bookkeeping because each lump sum includes transactions like sales, fees, refunds, and adjustments, which must be separated.
  
  
• Higher Return and Chargeback Rates: Ecommerce businesses face higher return and chargeback rates than physical stores due to online shopping risks. This affects revenue recognition, refund policies, and financial forecasting. It thus requires advanced accounting practices that can track refunds, restocking fees, and disputed transactions.

Key components of ecommerce accounting

Each component of ecommerce accounting records your transactions and reconciliation across multiple platforms accurately and helps you stay aware of cashflow, revenue, profitability, anytime you need. Below are some of the main ones.

1. Tracking sales and revenue accurately

In online retail, real-time monitoring of sales and revenue is essential for making informed financial decisions. You must link sales channels directly with accounting software like Quickbooks, Netsuite, Wave, Sage, or Xero. Doing so will allow you to track not just product sales, but also returns, discounts and coupons, promotional sales, sales revenue, and shipping fees in real time.

Proper sales tracking enables ecommerce businesses to:

• Monitor cash flow effectively
• Detect discrepancies and fraudulent transactions
• Understand sales trends and customer preferences
• Streamline tax calculations and reporting.

Also, these ecommerce accounting tools allow you to set up automated workflows. In doing this, they let you match your online store sales data with bank deposits and reconcile discrepancies.

These tools enable you to schedule regular audits to compare your recorded sales with bank statements and payment gateway reports. You can also set up automated alerts for any anomalies or mismatches in your sales data. 

2. Managing inventory and Cost of Goods Sold (COGS)

Efficient inventory management and COGS tracking are essential for ecommerce businesses. Inventory management helps sync your store inventory data from all sales channels. And accounting software will do this in real time, providing an accurate view of stock levels in a single dashboard. That means every item sold is accounted for in the COGS calculation.

COGS is the direct cost of acquiring the products you sell online. It includes the purchase price, shipping, import duties, and other expenses needed to make the product ready for sale. If COGS is too high, it will eat into profit margins, potentially rendering your online business unsustainable.

3. Handling business expenses and cash flow

Online businesses incur various expenses. These include shipping fees, marketing costs, software subscriptions, and payroll. Tracking these expenses ensures that you understand your spending patterns and identify areas for cost-cutting or optimization. 

An ecommerce accounting solution can help streamline cash flow management. It does this by automatically categorizing transactions and providing insights into how expenses align with your sales and revenue projections.

Here is an example of how you can categorize your ecommerce business expenses:

• Fixed expenses: Warehouse rent, salaries, software subscriptions, and insurance.
• Variable expenses: COGS, merchant processing fees, shipping costs, and marketing expenses.
• Direct expenses: Inventory expenses, shipping costs, and packaging costs.
• Indirect expenses: Domain registration, equipment purchases, and utilities

You can automate expense-tracking using accounting software by syncing with your ecommerce bank accounts, credit cards, and payment processors to capture every transaction in real time.

These  accounting tools can categorize expenses based on predefined rules, such as labeling payments to suppliers as “COGS” or marking marketing spend as “operational expenses.” By setting up expense categories and linking them to specific vendors or transactions, you can ensure that every purchase is correctly classified.

The tools automatically track sales, inventory, and shipping expenses. Furthermore, they provide detailed expense reports to help monitor cash flow. They thus ensure your online shop has enough liquidity to cover its operating costs.

Ecommerce accounting methods & best practices

This section will highlight the ecommerce accounting methods you must adopt.

1. Summary vs detailed accounting

There are two primary accounting approaches, summary and detailed accounting. These serve different needs based on business size, transaction volume, and reporting requirements.

a) Summary accounting

Summary accounting, or simplified accounting, provides an overview of financial transactions in broad categories. This accounting is for businesses that don’t require granular details on every transaction. 

For example, it can track income and expenses at a high level, often grouping transactions into categories such as “sales,” “operational costs,” and “inventory.” 

It’s excellent for smaller ecommerce companies or those with limited resources that need to manage finances without intensive bookkeeping. 

b) Detailed accounting

Detailed accounting, on the other hand, provides a more granular view of every financial transaction. It involves categorizing each sale, purchase, and expense to the smallest detail, offering a comprehensive view.

It can track the COGS per product and monitor inventory levels in real time. In addition, it can evaluate the profitability of individual sales channels. 

Detailed accounting is suitable for businesses with multiple online stores that require precise financial tracking, such as those with multiple product lines, numerous sales platforms, or those looking to scale.

2. Sales tax compliance and filing

Tax compliance and filing involves collecting customers’ correct sales tax amounts based on the applicable tax rates for different locations. Businesses must stay updated on tax laws, calculate sales tax accurately for each transaction, and ensure the timely filing of tax returns.

Navigating different state and international tax laws

Ecommerce businesses selling across multiple states and countries must comply with various tax regulations. This can be challenging due to differing rates, thresholds, and filing requirements.

• State Sales Tax Compliance (US): In the US, sales tax laws vary by state, and businesses must determine where they have a nexus or legal obligation to collect sales tax. Nexus can be triggered by factors such as a physical presence (warehouse, office, employees) or an economic threshold, such as $100,000 in sales or 200 transactions in a state.
  
  
• International Tax Compliance: For businesses selling to customers globally, for instance, in the European Union (EU), the Value-Added Tax (VAT) system applies. Sellers must register for VAT in countries where they meet specific sales thresholds or use the One-Stop Shop (OSS) system to simplify reporting.

Best tools for automating tax collection and reporting

• Avalara: It integrates with ecommerce accounting automation software like Webgility to calculate, check, and track your sales tax automatically. It handles US sales tax and VAT for international transactions, covering over 13,000 US locations and 192 VAT regions worldwide.
  
  
• TaxJar: The TaxJar platform automates sales tax compliance across 11,000 jurisdictions. It is easy to use and integrates with ecommerce platforms to ensure that every sale is accurately taxed according to local regulations.

3. Financial reporting & key metrics

Financial reporting helps you understand your ecommerce business’s performance and guide strategic decisions.

4 essential reports every ecommerce business should track

• Income statement (Profit and Loss Statement): This statement summarizes a business’s revenues, expenses, and profits over a specific period. Business owners can understand their profitability by comparing total sales against costs. Key components include revenue, COGS, operating expenses, and net income. The income statement is crucial for evaluating whether the business is profitable and identifying areas where costs must be reduced.
  
  
• Balance sheet: The balance sheet shows the financial position of a business at a specific point in time. It includes assets (what the business owns), liabilities (what it owes), and equity (owner’s share). Tracking this report helps ecommerce businesses understand their solvency, liquidity, and financial stability.
  
  
• Cash flow statement: This report outlines the inflows and outflows of cash within an online business, categorizing them into operations, investing, and financing activities. It helps ensure the business has enough money to cover expenses, pay bills, and invest in growth. A positive cash flow is vital for day-to-day operations, especially in ecommerce, where fluctuations in sales and inventory need to be managed.
  
  
• Inventory turnover report: It measures how quickly inventory is sold and replaced over a specific period. This helps businesses identify slow-moving products and manage stock levels effectively. High inventory turnover indicates efficient sales, while low turnover suggests excess inventory or poor product demand.

How to analyze profit margins and operational efficiency

Analyzing profit margins involves comparing revenues with the costs of producing and selling products. The key profit margin metrics to track include:

1. Profit margin analysis

• Gross profit margin: This indicates how efficiently an ecommerce produces and sells its goods, excluding overhead costs. It focuses only on the costs directly tied to production.

Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue × 100

A higher gross margin indicates that the business effectively manages production costs and generates profit. For example, if a product generates $100 in revenue and costs $60 to produce, the gross profit margin would be 40%.

• Net profit margin: It shows the overall profitability of the business after accounting for all expenses, including operating costs, taxes, and interest. It provides a comprehensive view of profitability.

Net Profit Margin = (Net Profit / Revenue) × 100

For instance, if a business has $100,000 in revenue and $10,000 in net profit, the net profit margin would be 10%. This means that for every dollar of revenue, the company retains 10 cents as profit.

2. Operational efficiency analysis

• Inventory turnover: It highlights how quickly a business sells its inventory and indicates sales performance and inventory management. To calculate it:  

Inventory Turnover = Cost of Goods Sold / Average Inventory

A high turnover rate suggests the business is selling inventory efficiently, whereas a low rate may indicate overstocking or slow sales.

• Order fulfillment time: The time it takes to process and ship an order. A shorter order fulfillment time means better operational efficiency and customer satisfaction. While this isn’t always expressed in a formula, tracking this metric helps identify bottlenecks in the shipping and handling process.
  
  
• Cost Per Acquisition (CPA): This metric measures how much it costs to acquire a customer. 

CPA = Total Marketing Expenses / Number of Customers Acquired

A lower CPA indicates that ecommerce is acquiring customers more cost-effectively. It directly impacts profitability and operational efficiency.

Common challenges in ecommerce accounting

Ecommerce accounting comes with challenges, primarily driven by the dynamic nature of online sales and global operations. Recognizing these challenges is the first step toward developing effective solutions.

1. Managing multiple sales channels

Many ecommerce businesses sell across multiple platforms, such as Shopify, Amazon, eBay, Etsy, and their websites. While this diversification increases revenue opportunities, it also complicates accounting. Each sales channel may have different transaction fees, payout schedules, and reporting structures. 

For instance, Amazon deducts fulfillment and referral fees before disbursing payments, whereas Shopify allows direct control over pricing and payment processing. Without proper accounting tools, businesses may struggle to see total revenue, expenses, and profitability across platforms.

2. Tax compliance across different states or countries

Tax compliance across different states or countries is a significant challenge in ecommerce accounting due to varying tax laws, rates, and regulations. 

Businesses must navigate complex sales tax requirements, VAT, and international tax rules, often needing to adjust to frequent changes. The need for accurate tax collection and reporting in multiple jurisdictions can lead to administrative burdens, costly mistakes, and potential legal risks.

3. Reconciling transactions from various sales channels

Each sales channel may have different processing times, refunds, chargebacks, and payment fees, making it challenging to match deposits to actual sales. For instance, PayPal, Stripe, and Amazon Pay have different settlement periods, which may not align with sales recorded in an accounting system. This can cause discrepancies in revenue tracking and cash flow management.

The Webgility Advantage in Ecommerce Accounting

Webgility simplifies ecommerce accounting by automating financial processes across multiple sales channels like Shopify, Amazon, and eBay. It integrates with your online store’s accounting software like QuickBooks and NetSuite to provide real-time sales, expenses, inventory, and tax updates. 

This tool supports accurate reconciliation of payments and fees, while its automated tax reporting helps businesses comply with varying state and international tax laws. 

The platform also streamlines inventory management, order tracking, and profitability analysis, saving time and reducing errors.

Here is one of the case studies demonstrating how users of Webgility’s multi-channel ecommerce accounting find the help they need.

Conclusion

With the rise of multi-channel selling, complex tax regulations, and fluctuating payment processing, traditional retail accounting methods simply cannot keep up with the demands of modern ecommerce. You can streamline operations, improve cash flow, and make data-driven decisions using automated accounting software.

Webgility is one of these tools. It seamlessly integrates with sales platforms like Shopify, Amazon, and eBay, enabling real-time financial tracking, automated tax compliance, and streamlined inventory management. It can save time, reduce errors, and improve profitability.