Cleanup accounting for e-commerce

Cleanup accounting for e-commerce involves a focused, time-bounded effort to correct and organize accounting records to ensure accurate financial statements, correct taxes, and reliable data for business decisions.

This process is often triggered by messy multichannel settlements, missed sales-tax registrations, long-unreconciled bank or credit card accounts, inventory discrepancies, or preparation for sale, audit, or financing.A step-by-step cleanup checklist includes:

Gather all source documentation

This includes bank/credit card statements, merchant settlements (Amazon, Shopify, Stripe, PayPal), supplier invoices, shipping records, payroll, loan statements, sales tax returns, and prior-year tax returns.

Reconcile bank and credit-card accounts to statements.

Reconcile marketplace/processor settlements to recorded sales, breaking out gross sales, sales tax collected, shipping, discounts, platform fees, refunds/chargebacks, and net deposits.

Categorize transactions and fix misclassifications (revenue, COGS, fees, shipping, taxes, refunds).

Reconcile inventory and compute accurate COGS, including freight-in, duties, returns, and shrinkage. Choose and document a consistent inventory valuation method (FIFO/weighted avg).

Adjust for merchant fees, marketplace commissions, and chargebacks, accounting for them as expense or contra-revenue per policy.

Investigate and fix deferred revenue / prepayments and outstanding receivables/payables.

Review fixed assets and depreciation schedules, correcting capitalization vs expense errors.

Confirm payroll and payroll tax liabilities are recorded correctly.

Confirm sales-tax registration and filing status in states where you have nexus (economic or physical), correcting past-due filings where necessary.

Document all adjustments with memos and supporting schedules; keep backups of source files.

Close the books monthly going forward and schedule routine reconciliations.For compliance and state-specific considerations in the US

* Wayfair-era reality: Following South Dakota v. Wayfair, states can establish economic nexus thresholds, requiring remote sellers to collect sales tax based on sales volume or transaction count even without a physical presence. Sellers must evaluate these thresholds, which typically involve $100k in sales or 200 transactions, though they vary by state.* Marketplace facilitator laws: Many states mandate that marketplaces (like Amazon, Etsy, eBay, Shopify Payments) collect and remit sales tax on sales made through their platforms. While this eases some collection burdens for sellers, it doesn't always eliminate registration or reporting obligations, as some states still require sellers to register or report periodically even if the marketplace handles tax collection.* State registration: Sellers should consult each state’s revenue department (e.g., CA CDTFA) for registration portals, nexus rules, and guidance, as thresholds, definitions (marketplace vs. seller responsibilities), exemptions, and filing frequencies differ by state.* Priority states to check: Examples include CA, NY, TX, FL, WA, IL, PA, NJ, GA — Verify each state’s current economic nexus thresholds and marketplace facilitator treatment.Software, integrations, and automation are crucial. Tools like A2X, Webgility, or native connectors can pull marketplace settlement details into accounting software (QuickBooks Online, Xero) and automate revenue and fee mapping. Automation reduces manual entry errors, speeds reconciliation, and improves financial reporting clarity.Engage a CPA or specialist if you have multistate sales, complex inventory/COGS issues, potential unfiled sales tax returns, prior-year tax exposure, or need audit representation. This is also advisable for preparing restated financials for sale, investment, or loan applications.Maintain source files for all reconciliations, tax filings, settlement reports, and correction memos. Standard practice suggests retaining tax records for at least 3–7 years, depending on federal/state statute-of-limitations and audit risk.Recommended immediate next steps for US business owners / LLC founders:

Download a bookkeeping cleanup checklist (e.g., QuickBooks checklist) and assemble records.

Run bank, credit card, and marketplace reconciliation for the most recent 12 months; prioritize correcting sales, sales tax, and inventory discrepancies.

Perform a nexus assessment for states you ship to; confirm marketplace facilitator status for each marketplace you use and register where required. Check state revenue department guidance (for example, CA CDTFA) for registration and remittance requirements.

Implement automation/integration tools to maintain accurate channel-level reporting (A2X, Webgility, or similar) feeding QuickBooks or Xero.

Engage a CPA with e-commerce and multistate sales experience if you find significant past-due sales tax exposure, inventory valuation issues, or if you plan to pursue financing or a sale.