Ecommerce Accounting: The Essential Guide for Online Sellers (2026)
Ecommerce accounting has three layers that most general bookkeepers get wrong: cost of goods sold (COGS) calculation, multi-channel revenue reconciliation, and sales tax compliance across multiple states. Get these right and your financial statements are useful for decisions. Get them wrong and your margin data is meaningless, your tax liability is unknown, and your books will fail investor diligence.
COGS and Landed Cost: The Foundation
For ecommerce businesses, Cost of Goods Sold is the direct cost of the products you sold. The most common error: using purchase price as COGS and ignoring the costs that actually get the product to your warehouse.
Landed cost = Purchase price + Inbound freight + Import duties and tariffs + Customs brokerage fees + Quality inspection costs
A product you purchase for $10 from a factory in Vietnam might cost $13.50 landed after freight, duties, and brokerage. Your COGS should be $13.50, not $10.00. If you’re using $10.00, your gross margin is systematically overstated, and your pricing decisions are built on a false foundation.
Inventory costing methods:
- FIFO (First In, First Out): Assumes the first items purchased are the first sold. In a rising cost environment, FIFO produces lower COGS and higher reported profit — and a higher tax bill.
- Weighted Average Cost (WAC): Blends all inventory costs into an average. Simpler to administer than FIFO, especially with frequent replenishment cycles.
- LIFO: Assumes the most recently purchased items are sold first. GAAP doesn’t permit LIFO for international reporting; it’s allowed for US GAAP and US tax returns but increasingly rare.
Your accountant should document which method you use and apply it consistently. Switching inventory methods requires IRS approval (Form 3115).
Multi-Channel Revenue Reconciliation
If you sell on multiple channels — Amazon, Shopify, Walmart Marketplace, TikTok Shop, eBay — you receive settlement payouts from each. The critical error: booking these payouts directly as revenue.
Amazon settlement payouts include: product sales, minus Amazon fees (referral fees, FBA fees), minus customer refunds, minus reserved funds, plus reimbursements, plus any miscellaneous credits or charges. Booking the net payout as “Revenue” understates both gross revenue and expenses.
The correct approach: Use a tool like A2X to map each settlement into its components:
- Gross sales → Revenue
- Selling fees → COGS or Platform Fees (OpEx, depending on your classification policy)
- FBA fees → COGS (fulfillment costs)
- Customer refunds → Revenue reversal
- Reimbursements → Separate income line item
Shopify has similar complexity: Shopify Payments payouts net out fees; Shopify also handles sales tax collection in some states but not others.
TikTok Shop (now a significant channel for many brands): TikTok Shop payouts require similar reconciliation — creator commission fees, platform fees, and returns are netted against gross sales in the payout.
Sales Tax Nexus: Post-Wayfair Compliance
The 2018 Supreme Court ruling in South Dakota v. Wayfair established that states can require out-of-state sellers to collect and remit sales tax based on economic nexus — sales volume or transaction count — not just physical presence.
The typical threshold: $100,000 in annual sales or 200 transactions in a state. Most states have adopted this standard, but thresholds vary.
The practical reality for ecommerce sellers: If you’re selling nationally on Amazon, Shopify, or Walmart Marketplace and you’ve crossed the threshold in more than a handful of states, you may have nexus in 20–40 states. Each state requires a separate registration, collection at the correct rate, and periodic remittance.
Marketplace facilitator laws significantly changed this for many sellers: Amazon, Shopify (in some states), Walmart, and eBay are now legally required to collect and remit sales tax on your behalf in most states where marketplace facilitator laws apply. This means many sellers don’t need to collect sales tax on Amazon sales — but you still need to understand:
- Which channels fall under marketplace facilitator rules (and which don’t)
- Whether you have nexus from other activities (warehouse, employees, physical presence) that creates additional obligation
- How to handle sales where the platform facilitates for some states but not others
TaxJar and Avalara automate nexus tracking, rate calculation, and filing. At any significant sales volume, manual sales tax management is not viable.
Amazon FBA-Specific Accounting Issues
Amazon FBA creates several accounting nuances beyond what basic bookkeeping handles:
FBA inventory as an asset: Inventory in Amazon’s warehouses is your asset, not Amazon’s. It should appear on your balance sheet. If your accountant is expensing inventory when shipped to Amazon rather than when sold, your balance sheet is wrong.
Amazon reimbursements: Amazon owes reimbursements for lost or damaged FBA inventory, carrier-damaged inbound shipments, and various overcharges. Amazon frequently underpays these — firms like Getida audit your account and file claims on a contingency basis. Reimbursements are income when received and should be tracked separately.
Long-term storage fees: Amazon charges long-term storage fees (LTSFs) for inventory held more than 181 days. These fees appear in your settlement and should be tracked — they’re a signal that you have slow-moving inventory to manage, not just an accounting entry.
Returns and A-to-Z claims: Amazon’s return policy is generous, and A-to-Z claims result in customer refunds that may or may not be accompanied by returned inventory. Your accounting needs to capture both the refund (revenue reduction) and the inventory disposition (write-off if defective, return to sellable inventory if not).
Inventory Reconciliation: The Missing Step
Monthly inventory reconciliation is the most commonly skipped step in ecommerce accounting. The process:
- Start with beginning inventory balance (units × cost)
- Add: inventory received this month (at landed cost)
- Subtract: inventory sold this month (units sold × FIFO or WAC cost) → this is your COGS
- Subtract: inventory write-offs (damaged, expired, stolen)
- Result: ending inventory balance
Compare to physical count. If your calculated ending inventory doesn’t match your actual stock level (from your inventory management software or a physical count), you have a reconciliation variance — and a potential COGS error.
Skipping this reconciliation means your COGS number on the P&L may be unreliable. Unreliable COGS means your gross margin is unknown. This is one of the most frequent problems Acuity encounters when onboarding new ecommerce clients.
Frequently Asked Questions
Should ecommerce businesses use cash or accrual accounting?
Accrual accounting, strongly. Here’s why: ecommerce businesses with inventory need COGS to match the period in which inventory was sold — not the period in which it was purchased. If you buy $100,000 in inventory in October and sell it in November and December, cash-basis accounting creates a $100,000 expense in October and no corresponding COGS in November/December. This makes your October P&L look terrible and November/December look artificially profitable. Accrual accounting holds the inventory purchase as an asset until sold, then recognizes COGS in the month the sale is made. This produces meaningful gross margin data that you can actually use for pricing and purchasing decisions. As a practical matter, the IRS also requires accrual accounting for businesses with inventory above certain gross receipts thresholds, though the threshold was raised significantly by the TCJA.
We received a 1099-K from Amazon for $800,000 but our actual sales were $600,000. What happened?
The 1099-K reports gross payments processed through the platform — before Amazon deducted its fees, before customer returns and refunds were processed, and potentially including non-revenue items like gift card redemptions. Amazon’s 1099-K reflects what customers paid, not what you received or earned. Your actual revenue ($600,000) is the correct number to report as income — not the 1099-K amount. You need a reconciliation that shows: 1099-K gross amount ($800,000) minus returns and refunds ($X) minus selling fees ($Y) minus other adjustments ($Z) = your actual net revenue ($600,000 approximately). Keep this reconciliation in your tax files in case the IRS cross-references the 1099-K with your reported income. Your accountant should build this reconciliation as part of your annual close — it’s a standard requirement for any Amazon seller.
How do we handle inventory that we've written down as damaged or unsellable?
A write-down reduces the carrying value of damaged or unsellable inventory to its net realizable value (what you can actually get for it, or zero if it’s truly unsellable). The journal entry: debit Inventory Write-Down (an expense account) and credit Inventory (reducing the asset). If you can sell the damaged goods at a discount (liquidation, Amazon salvage, donation), the sale proceeds offset the write-down expense. For tax purposes, inventory write-downs are generally deductible when you can demonstrate the inventory has a lower market value than cost — through liquidation evidence, aging analysis, or documented physical damage. The IRS looks for objective evidence that the write-down is necessary, not just a way to accelerate deductions. Document the reason for each write-down with specifics: lot numbers, inspection records, or liquidation sale prices.
We have inventory stored in multiple Amazon FBA warehouses across the country. Does that create sales tax nexus?
Yes — in most states, having inventory stored in a warehouse (including an Amazon FBA warehouse) creates physical nexus for sales tax purposes. Amazon has FBA warehouses in many states, and if Amazon stores your inventory there, you have physical presence in those states — regardless of whether you have any other operations there. This was true even before Wayfair established economic nexus. The states where Amazon maintains FBA warehouses typically require sellers to register and collect sales tax for in-state sales. However — many of these same states have marketplace facilitator laws that make Amazon responsible for collecting and remitting sales tax on your FBA sales. The practical result: Amazon likely handles the collection and remittance for FBA sales in most states, but you should verify your specific nexus states and whether Amazon’s marketplace facilitator obligations cover all your sales types.
We're growing fast and thinking about raising funding. What do investors check in an ecommerce company's financials?
Ecommerce investors look hardest at five things: (1) Gross margin by channel and by product category — they want to see not just your blended gross margin but which products and channels are most profitable. Flat gross margins despite scale may signal pricing problems or rising COGS. (2) Customer acquisition cost and payback period — how much does it cost to acquire a customer on each channel, and how long until their gross profit pays back that cost? (3) Repeat purchase rate and customer lifetime value — what percentage of customers buy again? What’s the average revenue per customer over 12 months? This determines whether your growth is sustainable. (4) Inventory turns — how quickly does inventory move? Slow inventory creates cash flow drag and write-down risk. (5) Working capital management — how much cash is tied up in inventory relative to your revenue, and are you managing vendor terms to extend your cash cycle? Clean, GAAP-compliant financials that clearly show these metrics are table stakes before any institutional conversation.