eCommerce Accounting: How to Handle Sales Tax, COGS, Refunds & Multi-Channel Revenue

eCommerce accounting is fundamentally more complex than traditional retail accounting. You are selling across multiple channels (your website, Amazon, Shopify, eBay), processing payments through various gateways, shipping to dozens of jurisdictions with different tax rules, and handling returns at scale. According to the U.S. Census Bureau, eCommerce now represents over 16% of total US retail sales, and the accounting infrastructure for many online sellers has not kept pace.

eCommerce accounting encompasses the recording, classification, and reporting of financial transactions specific to online retail, including revenue recognition across channels, cost of goods sold (COGS) tracking, sales tax compliance, refund processing, and payment gateway reconciliation.

This guide addresses the unique accounting challenges eCommerce businesses face and the practices that keep financial records accurate and audit-ready.

Revenue Recognition for Multi-Channel Sellers

When you sell through multiple platforms, revenue arrives from different sources with different fee structures and timing:

| Channel | Revenue timing | Typical fees | Payout schedule | |---|---|---|---| | Own website (Shopify, WooCommerce) | At checkout | 2.4-2.9% + $0.30 per transaction | 1-3 business days | | Amazon FBA | At shipment | 8-15% referral fee + FBA fees | Biweekly | | eBay | At checkout | 13.25% final value fee (average) | Daily or weekly | | Walmart Marketplace | At shipment | 6-15% referral fee | Biweekly | | Etsy | At checkout | 6.5% transaction fee + payment processing | Weekly or daily |

Revenue recognition best practices:

1. Record revenue at the point of sale (accrual basis), not when the payout hits your bank account. Amazon may hold funds for 14 days, but the revenue was earned when the product shipped.

2. Record gross revenue and fees separately. If you sell a product for $100 on Amazon and receive $85 after fees, record $100 in revenue and $15 in marketplace fees expense. Never record only the net $85 as revenue; this understates both your top line and your cost structure.

3. Reconcile marketplace payouts to individual orders. Each Amazon or Shopify payout includes revenue from multiple orders, fees, refunds, and adjustments. Map each payout to its component transactions.

4. Use a consistent chart of accounts with separate revenue accounts per channel (e.g., Revenue - Direct Website, Revenue - Amazon, Revenue - eBay). This enables channel profitability analysis.

Cost of Goods Sold (COGS) Tracking

Accurate COGS is critical for understanding true profitability. For eCommerce, COGS includes more than just product cost:

Components of eCommerce COGS:

• Product purchase cost or manufacturing cost
• Inbound shipping and freight to your warehouse
• Customs duties and import fees
• Packaging materials (boxes, bubble wrap, labels, tape)
• Direct labor for picking, packing, and shipping
• FBA storage and fulfillment fees (if using Amazon FBA)

COGS does NOT include:

• Marketing and advertising spend
• General overhead (office rent, administrative salaries)
• Software subscriptions
• Website hosting and development

Inventory Valuation Methods

Choose one method and apply it consistently:

| Method | How it works | Best for | |---|---|---| | FIFO (First In, First Out) | Oldest inventory cost is assigned to COGS first | Most eCommerce businesses; required under IFRS | | LIFO (Last In, First Out) | Newest inventory cost is assigned to COGS first | Allowed under US GAAP; rare in eCommerce | | Weighted Average | Average cost of all units is used for COGS | Businesses with homogeneous products | | Specific Identification | Actual cost of each specific unit sold | High-value, unique items (jewelry, art) |

FIFO is the most common and generally recommended method for eCommerce businesses because it matches the physical flow of goods (you ship older inventory first) and provides a more accurate balance sheet valuation.

Track inventory costs in your accounting platform. Odoo's inventory module integrates directly with accounting to calculate COGS automatically using your chosen valuation method. QuickBooks and Xero support inventory tracking but may require additional configuration for complex cost calculations.

Sales Tax Compliance and Nexus

Sales tax is the most complex compliance area for eCommerce businesses. After the 2018 South Dakota v. Wayfair Supreme Court decision, states can require sales tax collection from businesses with no physical presence in the state.

What creates nexus (tax collection obligation)?

• Physical nexus — Having a warehouse, office, employee, or inventory in a state
• Economic nexus — Exceeding a state's sales threshold (typically $100,000 in revenue or 200 transactions per year)
• Marketplace nexus — Selling through marketplaces that collect tax on your behalf (Amazon, Walmart, eBay collect and remit in most states)
• Click-through nexus — Using in-state affiliates to generate sales

Sales tax management steps

1. Determine where you have nexus by reviewing your physical presence, sales volume by state, and marketplace activity
2. Register for sales tax permits in each state where you have nexus
3. Configure tax collection in your eCommerce platform and accounting software
4. File and remit taxes on schedule (monthly, quarterly, or annually depending on volume)
5. Use automation — Tools like Avalara, TaxJar, or native tax engines in Odoo and QuickBooks automate rate lookup, collection, and filing across jurisdictions

Marketplace facilitator laws

In most US states, marketplace facilitators (Amazon, Shopify, eBay, Walmart, Etsy) are required to collect and remit sales tax on behalf of sellers. This means:

• Sales through these marketplaces typically do not require you to collect tax separately
• Sales through your own website DO require you to collect and remit tax in nexus states
• You must still track marketplace-collected tax for your records and report it on your returns (typically as exempt or marketplace-collected)

Refund and Return Accounting

eCommerce return rates average 20% to 30% (compared to 8% to 10% for brick-and-mortar retail), making refund accounting a significant operational and financial challenge.

How to record refunds:

1. Issue a credit memo that reverses the original sale (reduces revenue)
2. Reverse COGS if the returned product is restocked to inventory
3. Write off COGS if the returned product is damaged and cannot be resold
4. Refund marketplace fees — Some marketplaces refund a portion of their fees on returns; record this as a reduction in marketplace fee expense
5. Track return shipping costs as a separate expense line item

Best practices:

• Process refunds in your accounting system on the date the refund is issued, not the date the return is received
• Maintain a returns reserve (estimated return liability) based on historical return rates
• Categorize return reasons to identify product quality, listing accuracy, or shipping issues
• Reconcile refund totals per channel against your marketplace and payment gateway reports monthly

Payment Gateway Reconciliation

Payment gateways (Stripe, PayPal, Square, Shopify Payments) batch multiple transactions into single bank deposits. Reconciling these deposits against individual orders is essential for accurate books.

Reconciliation process:

1. Download settlement reports from each payment gateway for the period
2. Match gross transaction amounts to individual orders in your accounting system
3. Verify fee deductions — Processing fees, chargeback fees, and currency conversion fees should match gateway reports
4. Account for holds and reserves — Some gateways hold a percentage of funds for new merchants; record these as a receivable, not lost revenue
5. Reconcile the net deposit to your bank statement

Odoo can automate much of this process through its payment provider integration, automatically matching online payments to invoices and recording fees. QuickBooks and Xero offer bank feed connections that import deposits, but matching to individual orders may require additional tools.

Frequently Asked Questions

Q: Should eCommerce businesses use cash or accrual accounting? A: Accrual accounting is strongly recommended for eCommerce businesses. Cash basis does not properly account for inventory (which is an asset until sold), does not recognize revenue until marketplace payouts arrive (which can be weeks after the sale), and does not match COGS to the period in which products are sold. Accrual basis provides an accurate picture of profitability.

Q: How do I account for Amazon FBA fees? A: Separate Amazon fees into categories: referral fees (selling expense), FBA fulfillment fees (COGS or shipping expense), storage fees (warehouse expense), and advertising fees (marketing expense). Amazon provides detailed fee breakdowns in settlement reports. Do not lump all fees into a single expense category.

Q: What is the best accounting software for eCommerce? A: For small eCommerce businesses (under $1M revenue), QuickBooks Online or Xero with eCommerce integrations works well. For growing businesses with inventory complexity and multi-channel operations, Odoo provides the most comprehensive solution because accounting, inventory, sales, and eCommerce are natively integrated. See our detailed software comparison.

Q: How do I handle international sales and VAT? A: International sales may trigger VAT obligations in the customer's country. The EU requires VAT collection on digital goods and physical goods shipped to EU consumers. Use your accounting platform's VAT features or a tool like Avalara to determine rates, collect tax, and file returns. Track foreign currency transactions using proper multi-currency accounting practices.

Q: How often should I reconcile my eCommerce accounts? A: Reconcile payment gateway deposits weekly and perform full bank reconciliation monthly. For high-volume sellers (over 1,000 orders per month), weekly full reconciliation is recommended to catch discrepancies early.

Professional eCommerce Accounting Support

eCommerce accounting requires specialized knowledge that goes beyond general bookkeeping. Between multi-channel revenue reconciliation, sales tax nexus management, inventory valuation, and refund processing, the complexity adds up quickly.

ECOSIRE provides accounting services tailored to eCommerce businesses. We handle multi-channel revenue reconciliation, COGS tracking, sales tax compliance, and payment gateway reconciliation across Odoo, QuickBooks, Xero, and other platforms.

For businesses using Odoo as their eCommerce and ERP platform, our implementation and customization services ensure your accounting, inventory, and sales modules work together seamlessly.

Contact our team for a free eCommerce accounting assessment and learn how we can streamline your financial operations.