Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Do you know what's scarier than horror movies? E-commerce accounting has gone wrong.
Let's say you're using Shopify as one of your e-commerce business platforms. Naturally, the greatest advantage is getting a larger and global customer base. But this advantage also brings challenges. The transactions, for instance, can come from different sources, resulting in complicated financial management records.
As a result, you might find the recording and reconciling Shopify payments difficult. Additionally, Shopify consists of different payment categories (e.g., sales, deposits, shipping, and income tax). You should be able to distinguish each category for accurate tracking.
If you are using Shopify as your e-commerce platform, it's important to understand the basics of Shopify accounting reconciliation. Reconciliation ensures all of your transactions are accounted for and helps prevent discrepancies in your financial records and bank statements.
This article will discuss the five crucial points to remember when reconciling your business transactions on Shopify.
The Challenges of Reconciling Payments
Reconciliation in accounting refers to the monthly or quarterly process of matching the transactions in your books to the actual payments clearing your bank account. It may also involve review and analysis. This process is important because it helps ensure the accuracy of your company's financial records.
At the same time, reconciling payments can be challenging due to the various payment categories and sources, especially with e-commerce. Below are some of the most common challenges that business owners, bookkeepers, and accountants often encounter.
- Payments from various sources (e.g., multiple currencies or different platforms like Shopify) are difficult to track and categorize.
- Time differences and missing transactions are also common. For example, a customer makes a purchase, but the payment can't be processed until the following day or was excluded from the processing statement.
- Last but not least is human error. Sometimes, you or your financial team mistakes reconciling records, resulting in inaccuracy between the ledger and supporting documents.
You may find these challenges inevitable (especially human error), but you can prevent them from recurring and learn how to troubleshoot when necessary. Wondering how to start? Understand the crucial points of Shopify account reconciliation first.
5 Crucial Points to Understand When Reconciling Shopify Payments
Now you're aware of the challenges of reconciling Shopify payments. This time, let's talk about the five crucial points. Take this as an early step closer to your reconciliation goals: ensuring financial accuracy and avoiding discrepancies.
Understanding Shopify Payments and How They Affect Revenue
One of the main aspects you need to understand is how Shopify payments are recorded in your books. First, know which revenue streams come from Shopify and which ones don't. Generally, any sales generated on Shopify are considered income.
These include product sales, shipping fees, taxes, or something more specific like PayPal, Shopify Payments, or Amazon Payments. They are also considered revenue deductions, so you need to know how to account for them properly.
Multiple Locations and Currencies
Shopify also allows businesses to serve multiple locations and use different currencies. Extending your customer base is a good thing. On the other hand, it complicates the accounting process, which can be difficult to reconcile.
Thus, you must determine the shop where the Shopify sale comes from and what currency it was processed in. This can be tricky if your business is just starting to expand and involve international transactions. Fortunately, there are Shopify accounting integration and multi-currency tools available today.
Learning How to Reconcile a Shopify Payment
Here's the catch. Every accounting software has a different reconciliation process. The features and settings you see in Quickbooks might differ from Xero or other similar programs. Reconciliation isn't an exception. Therefore, when integrating software with Shopify, learn the procedure carefully before taking action.
This way, you can ensure the accuracy of your records and avoid trouble when it's time for account reconciliation. Don't worry if you can't handle everything on your own; a reliable bookkeeper or accountant knows how to handle this matter like the back of their hand.
Manual vs. Automated Reconciliation
Wondering whether you should reconcile manually or automatically? Well, that depends on your basic needs and preference. If you prefer to have more control over the process, try manual reconciliation. Still, you will have to go through your sales receipts and bank statements line by line.
It can be a tedious process, but it provides you with a good, detailed view of your finances. Meanwhile, Shopify's automated accounting saves you time and spares you from error-prone reconciliation, albeit the lack of control you have over the system.
Relying on Your Assessment
You may not be an accounting expert, but you are the captain of your ship. In other words, you know your business well. So when your accountant reports financial data to you and asks you to build concrete plans, you'll know exactly what to do.
Ultimately, account reconciliation is all about understanding your business finances and ensuring that everything is in place. So whether you're reconciling Shopify payments or other financial transactions, it's important to assess every detail. It doesn't have to be difficult if you know what you're doing.
Asking for Help and Communicating Effectively
Finally, if you get stuck or need help with a financial matter, don't be afraid to ask. The e-commerce concept is already confusing on its own; what more if you add financial management? Bookkeepers and accountants are always great learning sources. They can guide you through reconciling Shopify payments or any other financial transaction.
Effective communication is key to all business relationships, so be vocal about your needs, goals, and expectations. Then, as early as possible, learn how to communicate clearly and effectively. If it develops into a good, lasting habit, this alone can take your Shopify business to success.
Unloop’s Impeccable Shopify Bookkeeping and Accounting Services
Reconciling your business finances can be difficult, especially when you add e-commerce to the picture. If you're having trouble with Shopify payments, you must first understand the crucial points.
You need to track all financial transactions and related activities from Shopify reports and payment processors. Then, you must reconcile them and conduct an accuracy check to ensure they match what's hitting your bank account. It can be tiresome, but it needs to be done.
However, you don't have to work these all by yourself. You can work with Unloop for seamless Shopify accounting services! We can help you prepare financial statements, sales tax filings, e-commerce analytics to produce an organized set of books. By doing this, you can better understand your business's financial health and tweak your strategies for success. Contact us today.