What it means
Shopify runs the store, and with Shopify Payments it collects the money and pays it out to your bank. One payout touches several accounts at once: sales, refunds, sales tax payable, merchant fees, and cost of goods sold with the inventory behind it. The deposit amount is a net figure that mixes them all.
The $5,024 payout started as $5,000 of sales plus $400 of sales tax. Out of that came a $200 refund, the $16 of tax on it, and $160 of fees. Sales stay at the full $5,000 and the refund goes to a contra-revenue account, so net sales are $4,800. Sales tax payable is $384, what you still owe the state. The $160 is a merchant fee expense, and Shopify keeps the fee on the refunded order too.
The goods shipped cost $1,800, which moves from inventory to cost of goods sold. That leaves $3,000 of gross margin. A payout often covers several days of orders, so sales from the last days of a month can pay out in the next. The sales still belong to the month they were made.
Tie each payout in the bank to Shopify's payout detail. Check sales tax payable against Shopify's tax reports for the month, state by state. Compare inventory on the balance sheet to what's actually on hand, and book any difference.
Sales tax nexus decides which states you collect for. Cost of revenue and gross margin are where the inventory side shows up.
Why it matters. A Shopify Payments payout is sales plus the tax you collected, minus refunds and fees. Revenue, cost of goods sold and sales tax each have to be pulled back out.
Shopify isn't a ledger, and we don't connect to it. We work only in QuickBooks Online and Xero. This page covers how Shopify shows up in the books kept there.
The entry, worked
A payout of $5,024 covers $5,000 of product sales and $400 of sales tax collected. Out of it came a $200 refund, plus the $16 of tax on it, for a damaged item the customer kept, and $160 of fees. The goods shipped cost $1,800.
| Account | Debit | Credit |
|---|---|---|
| Cash | $5,024.00 | |
| Refunds (contra-revenue) | $200.00 | |
| Merchant fees | $160.00 | |
| Cost of goods sold | $1,800.00 | |
| Sales | $5,000.00 | |
| Sales tax payable | $384.00 | |
| Inventory | $1,800.00 | |
| Total | $7,184.00 | $7,184.00 |
Sales tax payable is the $400 collected less the $16 refunded, since that tax went back to the customer. Nothing came back into inventory because the customer kept the item.
Common questions
Is sales tax collected through Shopify revenue?
No. You collect it for the state, so it's a liability until you file and pay it. When you refund the tax too, reduce the liability by that amount.
How do I record Shopify payouts?
Split each payout into gross sales, tax collected, refunds and fees, using the payout's transaction detail in Shopify. Cash then equals the deposit and each piece sits in its own account.
Does Shopify return its fee when I refund an order?
For Shopify Payments, no. The original processing fee isn't returned, so the fee stays an expense even though the sale was refunded.
Read further
- How to reconcile Stripe payouts to your booksFounder guide · 4 min
- Card and ACH payments: applying and reconciling themFounder guide · 6 min
- Sales tax nexus for startups: when you owe tax in a stateFounder guide · 4 min
- Sales tax nexusRelated · Tax · Wayfair, 2018
- Revenue recognitionRelated · US GAAP · ASC 606
- SquareRelated · Payments
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.