eBay Accounting: Principles, Tools, and Compliance (Explained)

Managing eBay accounting can feel like a losing battle, given the many activities you must complete. You must import transactions, categorize them as incomes or expenses, analyze taxes and fees, and prepare financial records. 

All these bookkeeping and accounting activities can easily overwhelm you, but it can be different if you have the right accounting software.

Try Link My Books - our automation software that helps you track sales data and export the information to your Xero or QuickBooks account for accurate accounting (it will take only ten minutes per month). 

Sign up for our free trial to see how our platform connects your eBay seller account to your Xero or QuickBooks account for seamless accounting on autopilot.

How is Reseller Accounting Different?

An eBay reseller buys items from eBay, other online marketplaces, or offline places and sells them for a profit on eBay. Most eBay resellers source used items from offline places like garage sales, estate sales, thrift stores, flea markets, or yard sales.

Since the reselling system is slightly different, it has minor accounting differences from the usual eBay selling system.

For example, an eBay reseller records more mileage because they drive a lot between different merchandise sources. Tracking more mileage for business activities means the reseller can request a higher tax deduction.

Additionally, if you opt to resell without an eBay store, your listing fees may be higher, increasing business expenses. However, you can also receive a higher tax deduction based on the allowable expenses.

The implication is that you are likely to account for higher business expenses, which can qualify for higher tax deductions when you do your tax returns.

Despite these slight differences, reseller accounting shares the following similarities with seller accounting:

• You track the cost of goods sold.
• You track inventory using inventory management tools.
• You track your eBay sales, prices, date of sale, and fees. You can then export these data from eBay to your favorite accounting software if you have an eBay store account. 

10 Accounting Principles for eBay Sellers

E-commerce creates new challenges for the existing accounting standards and principles. However, as an eBay seller, you can still apply well-known accounting principles as a guide. 

eBay sellers in the US can use the 10 Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB). 

The principles are set rules or standards businesses can use to ensure consistency and transparency in reporting financial information. 

Here are the 10 GAAP accounting principles you can apply as an eBay seller:

1. Principle of Consistency: GAAP rules require you to use the same accounting standards year after year. The principle allows you to easily compare financial reports over a given time. 
2. Principle of Permanence of Methods: This principle specifically applies to the yearly consistency of e-commerce accounting methods. For example, if you use the accrual method, stick to it every year for transparency and easy comparison of financial performance in the long term. 
3. Principle of Utmost Good Faith: It's assumed that everyone acts honestly in the accounting process. 
4. Principle of Prudence: Since accounting is all about facts, this principle requires you to provide factual information for financial reporting. You may not overstate your gains or losses. 
5. Principle of Sincerity: Be honest and report your financial information without any bias. 
6. Principle of Materiality: Your financial report should fully and accurately reveal your business's monetary situation. Do not withhold part of the profits from your balance sheet. 
7. Principle of Regularity: Consistently follow the rules of GAAP in your financial recording and reporting. 
8. Principle of Periodicity: Use regular and consistent accounting periods that are generally accepted, such as quarterly, yearly, or monthly. 
9. Principle of Non-compensation: Provide a comprehensive account of all your business debts and assets so you won't be tempted to offset debts with assets or vice versa in your financial statements. 
10. Principle of Continuity: When valuing your assets, assume that your business will continue operating in the future just like it has in the past. 

In addition, you can apply the revenue recognition principle to your eBay accounting. The principle is about how a business recognizes revenue and accounts for it. 

Businesses typically recognize revenue when a crucial event occurs, such as when they have delivered a product to a buyer, and they can easily measure the dollar amount they receive. 

The good thing is that the revenue recognition principle uses the accrual method, which recognizes revenue when it is realized and earned rather than when the cash is received. 

Top 4 eBay Accounting Software for Sellers

When it comes to accounting software for eBay sellers, you'll want to use only the best to ensure utmost accuracy. 

Most eBay accounting software require an additional tool to import your eBay financial data into your accounting software. What if you use an e-commerce accounting tool that connects with your eBay accounting software to simplify the process further?

1. Link My Books 

With Link My Books, you can automate your eBay bookkeeping without downloading eBay Managed Payments reports. 

You can integrate Link My Books with Quickbooks to eliminate manual data entry. Our tool breaks down payments into sales, fees, value-added tax, and refunds. 

Our software generates an accurate invoice each time you receive an eBay Managed Payments payout, ensuring the invoice matches the amount in your bank. This matching makes payment reconciliation easy with a single click. 

Another crucial advantage of using our tool is that it connects with eBay stores from any country. You can also link up to 5 or 10 eBay accounts with our pro and premium plans. 

If you use Xero as your accounting software for eBay selling, integrate your Xero account with Link My Books for the same bookkeeping and accounting activities as with the QuickBooks integration. 

2. A2X

A2X connects your eBay seller account with accounting software like Xero, QuickBooks Online, Sage, and Oracle NetSuite. 

The tool provides details about your bank deposits and automatically sends clean journal summaries of the deposits to your accounting software. 

A2X categorizes each transaction and breaks down the data into sales, taxes, refunds, and fees, creating detailed summaries that match the deposits in your accounting system. 

3. SaasAnt PayTraQer

PayTraQer is a cloud-based bookkeeping automation application that connects your eBay account with Quickbooks and Xero. 

PayTraQer imports transaction data, calculates taxes and eBay fees, categorizes expenses and incomes, and generates profit and loss reports. 

4. Dext

Dext (formerly Greenback) automatically syncs your accounting data between eBay Managed Payments and your QuickBooks account. The tool collects your eBay sales, reimbursements, refunds, and fees and exports them to QuickBooks. 

Dext is keen on reducing the chances of treating eBay payout deposits as sales, a misrepresentation that overstates your revenues and increases your taxes. 

Note: Dext will require you to create a “clearing account" in your QuickBooks Online account. The concept can be confusing because most sellers are used to connecting their eBay stores with bank accounts. 

Best Tax Software for eBay Sellers

Tax handling is usually troublesome for most eBay sellers, especially if they don’t do accurate accounting. 

Here are some helpful eBay tax software solutions to consider:

1. TurboTax

TurboTax connects with QuickBooks and allows you to file your taxes through a guided process. If you have an eBay tax specialist, they can file the taxes for you. 

The tool even searches for tax deductions you qualify for to boost your take-home amounts. 

2. TaxJar

As an e-commerce sales tax software, TaxJar links with your eBay store to offer daily updates and sales tax calculations by country and city with the TaxJar Professional plan. 

You can then use the information from TaxJar to fill out your sales tax forms. Alternatively, you can use the platform’s AutoFile feature, which allows them to automatically submit your tax forms. 

3. Avalara AvaTax

AvaTax is a versatile tax software tool for calculating VAT, GST, and sales tax. The tool tracks nexus and sends alerts. It can also prepare consolidated reports and export them. 

In 2023, Avalara teamed up with eBay to manage cross-border tax compliance, making it easier for eBay sellers to handle taxes in all the countries where they sell. 

You can now link AvaTax to your QuickBooks account for tax accounting and compliance. 

How to Navigate Taxes and Deductions as an eBay Seller

We agree handling taxes as an eBay seller is challenging. 

Here are some tips and aspects to consider:

• All sellers aren’t equal: The IRS doesn't treat all sellers the same way. For example, you may not face mandatory payments if you make the online equivalent of a garage sale. However, you must report your income. 
• Hobby sellers must report their revenue: As a hobby seller, report your revenue using Form 1040, but remember that you can't use deductible expenses to maximize your profits. 
• Selling products for payment means business: If you sell on eBay for remuneration, the IRS considers that business and requires you to use Schedule C to report your income, reducing it by the allowable eBay business costs. 
• You may be exempted from eBay income tax: Not every online marketplace transaction attracts income tax. For example, if you sell previously used home items, you don't have to show that cash inflow on your documents. 
• Selling at a loss may exempt you from eBay taxes: If you bought goods on eBay but sold them at a lower price, you don't have to inform the IRS. However, you can't claim any damage on that transaction. 

As an e-commerce business owner, you can benefit from the following tax deductions:

• eBay fees 
• Internet and phone bills connected with your eBay operations
• Money you spend to buy or fix up the items sold
• Advertising expenses
• Car expense deductions when you use it to solve commercial issues. 

Accounting Challenges Faced by eBay Sellers

You may have noticed the following eBay accounting challenges:

• The complexity of tracking transactions. Following up on multiple transactions daily can be daunting because you must accurately capture sales, taxes, and costs.
• Amounts on the book of accounts often differ from the information on bank documents.
• Sellers often make costly, wrong business decisions because of inaccurate data. 
• High risks of errors during manual accounting. 
• Spending too much time on manual accounting that could be dedicated to growing the business. 

Frequently Asked Questions (FAQs)

You may have extra concerns about eBay accounting. Let's answer more questions below. 

Are There Specific Accounting Practices for eBay Dropshipping?

eBay dropshipping results in slightly different accounting practices. For example, since dropshippers typically don't hold any inventory, they don't have any inventory-related expenses, such as the cost of fixing up items sold. 

As such, an eBay dropshipper won't have to report such inventory-related expenses, meaning they can't get tax deductions on them. 

What is the Best Way to Handle Returns and Refunds in eBay Accounting?

The best way to handle returns and refunds in eBay accounting is to record every refund as a deduction, ensuring you show the correct original price of the item. 

Remember to deduct the refunds from the payouts deposited to the bank when you do your taxes. 

How Can I Ensure Compliance with eBay's Accounting Policies?

The best way to ensure compliance with eBay's accounting policies is to hire an eBay accountant. At Link My Books, we have approved eBay accountants if you need help with accounting and other specific compliance queries. 

Conclusion

While we agree that eBay accounting is quite challenging, using the right accounting software makes it easier. 

You can choose Link My Books to connect your eBay seller account to your Xero or QuickBooks accounting software. Book a demo today to see how our tool can help you simplify your eBay accounting.