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While accounting and bookkeeping may not be the most exciting parts of running your own Shopify business, they are critical to your Shopify store’s success. 

In today’s article, we’ll explore the key principles and best practices for accounting and bookkeeping on Shopify for UK business owners - whether you're just starting out with Shopify accounting or looking to improve your existing processes. 

Read on to learn how to set up your accounts, manage your inventory and outsource time-consuming Shopify accounting tasks. 

Setting up your Shopify accounting system

The first step to successful Shopify accounting is to set up your accounts properly. Here’s how: 

  1. Open a business bank account:
    If you haven’t already, you'll need to open a separate bank account for your business, and make sure that all your business transactions are separate from your personal expenses.

  2. Choose the right accounting software:
    You’ll want to choose reliable accounting software that integrates seamlessly with Shopify. Popular options in the UK include Xero, QuickBooks, Sage and Crunch.

  3. Connect your Shopify store:
    Integrate your Shopify store with your chosen accounting software and enable automatic data syncing, so you don’t have to enter all your information manually.

  4. Choose a Shopify accounting method:
    When choosing an accounting method, you have two options: cash or accrual. Cash basis accounting is simpler and taxes income when it's received, but it can create timing issues with financial statements. On the other hand, accrual accounting is more accurate, recognising income and expenses when they are earned or incurred, but it requires more work and may result in taxes on money not yet received. Cash accounting is the best choice for high transaction volumes and smaller, consumer-focused Shopify businesses, while accrual accounting tends to be better for businesses dealing with large organisations and longer payment timescales.

  5. Set up payment gateways for your Shopify store:
    Make sure that your payment gateways are linked correctly to your accounting software to track transactions accurately. Shopify Payments - which is powered by Stripe - is a powerful built-in option for Shopify businesses, and a good place to start, but you can also customise your checkout process by integrating with over 100 other payment providers around the world.

Recording and reporting your transactions 

Recording your transactions accurately is at the heart of effective bookkeeping. Make sure that you use an accountant that can automate the recording of sales and fees for all of your sales channels for you. This will save you a huge amount of time and ensure your records are always up-to-date and accurate, reducing the chances of any nasty surprises down the line.

If you sell physical products, you'll also need to set up a system for tracking your stock levels. This could be as simple as manually updating a spreadsheet, but as you scale your store you may find it easier to use an inventory management tool to streamline the process. Whatever system you choose, make sure that it allows you to track your inventory in real time, so you always know what you have on hand.

On top of this, make sure you keep a record of all your business-related expenses, including supplier invoices, shipping costs, advertising expenses and other operational expenditures.

You’ll also need to generate accurate financial statements to gain a comprehensive understanding of your business's financial position. Here are the three types of financial statements you’ll need to prepare:

  • An income statement, which shows your revenue and expenses over a period of time.
  • A cash flow statement, which looks at your cash inflows and outflows and demonstrates you have enough working capital to meet your business's needs.
  • A balance sheet, which shows your assets, liabilities, and equity at a specific point in time.

Reconciling your accounts

Reconciling your accounts means making sure that the transactions in your Shopify accounting system match the transactions in your bank account and credit card statements. This is important because it ensures that your books are accurate and up-to-date. 

Shopify automatically records all your sales transactions, but it's important to reconcile these figures with your accounting software regularly. Match sales receipts, invoices, and payment records to keep your records accurate and on track.

You should reconcile your accounts regularly, such as once a week or once a month. This will involve comparing your accounting records with your bank statements to ensure everything matches. If it doesn’t, then identify the discrepancies and solve them before they become bigger problems. 

Staying tax compliant

As a business owner in the UK, you'll need to keep track of your VAT (Value Added Tax) obligations, and pay any income or corporation tax that you owe if you’re a sole trader or trading through a limited company.

If your annual turnover exceeds £85,000 (or will exceed it in any 12-month rolling period), you’re obligated to register for VAT and charge it on all sales. You'll also need to submit VAT returns to HMRC either monthly, quarterly or annually, and pay them any VAT that you owe. 

If you sell goods to customers outside the UK, you may also need to register for VAT in other EU countries. 

Unless your last Self Assessment tax bill was less than £1,000 or you paid more than 80% of the previous year’s tax you owed you may also need to make estimated tax payments ‘on account’ twice a year, which are advance payments towards your tax bill.

Tax rules will vary depending on your business's location and the types of products you sell, so it's important to do your research and consult with a tax professional if you're not sure. 

You don’t have to do it alone 

While managing Shopify accounting and bookkeeping tasks on your own is possible, seeking professional help can help you save hours of time each week, ensure you’re up to date with the latest ecommerce accounting regulations, and avoid any unnecessary errors.

Consider hiring a qualified accountant or bookkeeper to ensure compliance with UK accounting standards and tax regulations. They can also provide expert advice on financial planning and strategy.

You could also set up a consultation with a tax professional who specialises in UK tax laws, as they can help you navigate complex tax regulations, maximise tax deductions and file your returns on time.

Finally, it’s always a good idea to schedule regular financial reviews with a professional to assess the health of your business, identify areas for improvement, and strategize for growth.

Final thoughts

Effective accounting and bookkeeping are essential for UK business owners operating on Shopify. These are not just necessary administrative tasks but also powerful tools for understanding the financial health of your business. With a solid understanding of these processes and a commitment to maintaining accurate records, you can drive your Shopify business towards long-term growth and profitability.

Remember, while it's possible to manage these tasks on your own, seeking professional assistance can provide valuable expertise and support. By establishing a robust accounting system, recording transactions accurately, reconciling accounts, and engaging professional help when needed, you'll set your Shopify business on a path to financial success.

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Esther Lowde
Freelance Content Consultant
Updated on
July 20, 2023

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