How do I handle inventory accounting for e-commerce?
Start by tracking the true cost of every product you purchase. This means more than just what you paid the supplier. Include shipping to your warehouse or fulfillment center, customs duties if importing, and any other costs to get the product ready for sale. This landed cost becomes your inventory value on the books and determines your profit margin when you sell.
Pick an inventory costing method and stick with it. Most e-commerce businesses use FIFO (first in, first out), which assumes you sell your oldest inventory first. This works well for products that might change in cost over time. The IRS requires consistency here, so once you pick a method, you can’t switch without good reason.
Your accounting system needs to talk to your sales platforms. Whether you’re on Shopify, Amazon FBA, or multiple channels, every sale should reduce your inventory balance and record cost of goods sold. Some platforms integrate directly with QuickBooks or other accounting software. Others require manual exports or third-party apps to bridge the gap. The goal is matching what you sold to what it cost you to buy, without manual data entry errors piling up.
Returns and damaged inventory need their own process. When a customer returns a product, it goes back into inventory if it’s resellable or gets written off if it’s not. Damaged goods sitting in a warehouse still show as assets on your books until you adjust them out. Ignoring this inflates your inventory value and understates your losses.
Physical inventory counts matter even if your software tracks everything automatically. Do a full count at least quarterly, more often for high-volume sellers. Compare what you count to what the books say. Discrepancies happen from theft, damage, miscounts, and platform errors. Finding a $500 variance in March is manageable. Finding $8,000 missing at year end is a problem that affects your taxes and your ability to trust your numbers.
Working with Merrimack Valley bookkeepers who understand inventory accounting saves time and catches issues you might miss. E-commerce inventory has quirks that general bookkeepers don’t always understand, like FBA storage fees, multi-channel fulfillment, and platform-specific reporting. Getting this right means knowing your true margins and having accurate financial statements that help you make better buying decisions.
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