Shopify does an excellent job of telling an ecommerce business what happened inside its store. It knows what you sold, what you refunded, the fees you paid, the sales tax collected and how much money was eventually paid to you.
But Shopify is not an accounting system for the entire business. Shopify reports alone generally do not provide all of the information needed to prepare the company’s financial statements or income tax returns.
That’s where QuickBooks Online comes in.
QuickBooks Online brings Shopify activity together with the rest of the company’s financial activity—bank accounts, credit cards, payroll, inventory, operating expenses, loans and other assets and liabilities.
The challenge is getting the Shopify activity into QuickBooks correctly.
That’s where A2X acts as the bridge.
Shopify → A2X → QuickBooks Online
Shopify tells us what happened in the store. A2X organizes that activity into accounting information. QuickBooks Online brings it together with everything else that happened in the business.
That distinction becomes increasingly important as a Shopify business grows.
Your Shopify sales will not equal the deposits appearing in your bank account. Your bank deposits will not necessarily equal the revenue appearing on your profit and loss statement. And simply connecting Shopify to QuickBooks Online does not guarantee that any of those numbers are being recorded correctly.
The goal of Shopify accounting isn’t to make all three numbers identical.
The goal is to understand why they’re different and make sure the accounting properly explains those differences.
Why Shopify Sales Don’t Equal Your Bank Deposits
Suppose your Shopify store has $200,000 of sales during a month.
You should not expect $200,000 to appear in your bank account.
Before Shopify pays you, there may be payment processing fees, refunds, chargebacks and other adjustments. Some customers may have paid through PayPal or another payment gateway rather than Shopify Payments. Timing can also cause sales recorded near the end of one month to be deposited during the next.
That means the deposit hitting the bank is only one piece of the transaction.
One of the easiest ways to create bad Shopify accounting is to record the net bank deposit as sales.
The bank tells us how much cash arrived.
Shopify tells us what happened to produce that cash.
We need both.
Where QuickBooks Online Fits
QuickBooks Online should ultimately provide the financial statements for the entire company.
Shopify cannot do that because Shopify only knows what happens within Shopify.
It doesn’t know about payroll. And, it doesn’t know about many of your operating expenses. It doesn’t know about your business loans, credit cards, owner distributions or many of the other assets and liabilities on your balance sheet.
And if you also sell through Amazon, Shopify doesn’t know what happened there either.
QuickBooks Online brings those pieces together.
But that doesn’t mean we want every individual Shopify transaction dumped into QuickBooks.
For many established Shopify sellers, doing that creates an enormous amount of accounting activity without necessarily producing better financial information.
We would rather have Shopify retain the transaction-level detail and have properly summarized information flow into QuickBooks Online.
That’s where A2X becomes useful.
What A2X Does With Shopify
A2X sits between Shopify and QuickBooks Online.
It takes the detailed information maintained by Shopify and organizes that activity so it can be posted to QuickBooks in a way that makes accounting sense.
That may include sales, refunds, discounts, Shopify fees, sales tax and other components of the Shopify activity.
In other words, A2X is the bridge between the ecommerce platform and the accounting system.
Shopify → A2X → QuickBooks Online
But the quality of the accounting depends on how that bridge is configured.
A2X needs to know where the different types of Shopify activity belong in QuickBooks. If the mapping is wrong, the information can reach QuickBooks successfully and still produce incorrect financial statements.
An integration working without an error message does not necessarily mean the accounting is correct.
The Shopify Clearing Account Problem
Payment gateways are one area where Shopify accounting can become more complicated.
Not every Shopify customer necessarily pays through Shopify Payments. A seller may also receive money through PayPal or other payment methods.
Those transactions need to be accounted for and eventually reconciled to the cash actually received.
Clearing accounts can help bridge that gap.
A properly functioning clearing account should explain money that has been recorded through Shopify but has not yet completed its path to the appropriate bank or payment processor account.
But clearing accounts also need to be reconciled.
If the balance continues growing month after month, something may be wrong.
Perhaps a payment gateway has been mapped incorrectly. Or, perhaps transactions are entering QuickBooks through more than one connection. Perhaps money is reaching the bank but never clearing the corresponding accounting entry.
Whatever the cause, an old or steadily increasing clearing-account balance is usually something we want to investigate.
Don’t Judge the Integration by the Profit and Loss Statement Alone
A profit and loss statement can look reasonable even when the accounting behind it isn’t.
Sales may look approximately right. Expenses may look believable. Net income may even be close.
The problem may be sitting on the balance sheet.
That’s why a Shopify-to-QuickBooks setup shouldn’t be evaluated simply by looking at revenue.
The Shopify activity should reconcile. Clearing accounts should make sense. Cash should agree with the bank. And the balances sitting on the balance sheet should represent real amounts that can be explained.
The balance sheet often tells us whether an ecommerce integration is actually working.
Inventory Is Still Separate
Getting Shopify sales into QuickBooks correctly doesn’t solve inventory accounting.
Shopify can provide valuable information about the products a business sells and the quantities it has available. But operational inventory information isn’t the same thing as inventory accounting.
For Shopify businesses that maintain their own inventory, the accounting still needs to properly reflect inventory as an asset and recognize cost of goods sold as products are sold.
That’s another reason Shopify alone can’t provide the complete financial picture of the business.
Does Your Shopify Gross Margin Make Sense?
Once Shopify, A2X and QuickBooks are communicating correctly, one of the most useful numbers to examine is gross margin.
We aren’t looking for exactly the same percentage every month.
Product mix changes. Discounts change. Freight costs change. Pricing changes.
But an established business generally develops a range that makes sense.
If a Shopify company’s normal gross margin is around 45% and suddenly QuickBooks reports 28%, the financial statement shouldn’t simply be accepted because the bank accounts reconciled.
Something changed.
There may be a perfectly reasonable business explanation. But the change can also lead back to inventory, cost of goods sold, duplicate transactions or the way Shopify activity has been mapped into QuickBooks.
Gross margin can be one of the quickest ways to identify that something deserves a closer look.
Shopify Plus Amazon Makes the Accounting More Important
Many growing ecommerce businesses eventually sell through more than one channel.
A company may have its own Shopify store while also selling through Amazon.
At that point, neither platform can provide the complete financial picture.
Shopify knows Shopify.
Amazon knows Amazon.
QuickBooks Online brings the two together.
The accounting system can then combine those sales channels with inventory, payroll, operating expenses, bank and credit-card activity, debt and the other financial activity of the company.
That gives the business owner something neither Shopify nor Amazon can provide on its own:
A profit and loss statement and balance sheet for the entire business.
Good Shopify Accounting Should Eventually Become Boring
When a Shopify accounting system is first being set up—or an existing setup is being corrected—considerable time can be spent figuring out how information is moving between systems.
That’s not the long-term objective.
Once Shopify, A2X and QuickBooks Online are configured correctly, the process should become repeatable.
Each month, Shopify activity should flow into the appropriate accounts. The accounts should reconcile. Clearing balances should be explainable. Inventory and cost of goods sold should be updated. Gross margin should be reviewed.
Eventually, the conversation should stop being:
“Are these numbers right?”
and become:
“What are these numbers telling us?”
That’s when the accounting system is doing its job.