December 20, 2023
26 min

Shopify Bookkeeping (in 2024) Explained: The Ultimate Guide

Selling on Shopify? Don't know where to start with your bookkeeping? Check out our full step by step walkthrough of everything you need to know!
Shopify Bookkeeping (in 2024) Explained: The Ultimate Guide
Table of contents

Are you grappling with managing your financial transactions for your Shopify-based business? We've been down that road too and found out that about 82% of small businesses fail due to poor cash flow management.

Let's help you avoid falling within this statistic. This guide has all the answers, offering simple steps to implement Shopify bookkeeping successfully. Dive in, it's time to take control of your online store finances!

Key Takeaways from this Post

Shopify bookkeeping is crucial for effectively managing the financial transactions of your Shopify-based business and avoiding cash flow issues that can lead to business failure.
The main difference between Shopify bookkeeping and Shopify accounting is that bookkeeping focuses on recording sales, expenses, and money flow, while accounting uses these records to make strategic business plans.
To successfully implement Shopify bookkeeping, start by setting up a separate bank account for your Shopify store, record every sale and expense accurately, and regularly review reports in Shopify for valuable insights into your store's performance.
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Shopify Bookkeeping vs Accounting

The main difference between Shopify Bookkeeping & Shopify Accounting is that Bookkeeping is about recording all sales, expenses, money in or out. We write this info down every day. On the other hand, accounting is looking at these records to make plans for our business.

An accountant might look at how much we spend on goods or how much we get from selling things. They use these numbers to help us find ways to grow our money more or cut costs where needed.

Basic steps for beginners

We want to help you with Shopify bookkeeping. It can seem hard at first but these simple steps will make it easy.

  1. Start by setting up a separate bank account for your Shopify store. This keeps your business money and personal money apart.
  2. Next, add your products to the store. Note down the cost of each item.
  3. You need to record every sale you make on Shopify. Keep track of what product was sold, who bought it, and how much they paid.
  4. Don't forget about expenses! Record all costs like shipping fees or buying more stock.
  5. At the end of each week or month, add up all your sales and expenses. This is how much money you made or lost.
  6. Finally, spend time reading reports in Shopify. They show useful info about how well your store is doing.

Choosing the right software

To effectively manage your Shopify bookkeeping, it's crucial to choose the right software. Look for Shopify accounting software that has been designed with Shopify businesses in mind. This will help you streamline your bookkeeping process and ensure accuracy in tracking sales, expenses, and inventory.

Consider features like automated data syncing with your Shopify store, integration with other business tools, and reporting capabilities. Compare different options and read reviews to find the best software that meets your needs.

Taking the time to choose the right software will make your Shopify bookkeeping more efficient and less time-consuming in the long run.

Automating the process with Link My Books

happy accountant

To make Shopify bookkeeping easier and more efficient, you can automate the process using Link My Books. Link My Books is a software that integrates with Shopify and helps streamline your bookkeeping tasks.

With Link My Books, you can automatically import your sales data, track expenses, and reconcile transactions without the need for manual entry. This saves you time and reduces the risk of errors in your financial records.

By automating your Shopify bookkeeping with Link My Books, you can focus on growing your eCommerce business while staying on top of your finances effortlessly.

What should you be accounting for with Shopify?

Sales & Refunds

If you’re VAT registered then you will need to be accounting for your sales revenue split out by destination and also by tax rate.

‍You should account for sales to customers in the UK separately to sales to customers outside the UK. This is because they incur different VAT rates.

Sales to the UK will typically incur 20% VAT, whereas sales outside the UK are classed as exports and are usually zero rated.

If you’re selling any products that are zero rated or reduced rated then those will also need to be separated out.

‍You should end up with the following groups of sales:

Sales group

Sales of Standard Rated Products to the UK 

20% VAT on Income

Sales of Reduced Rated Products to the UK 

5% VAT on Income

Sales of Zero Rated Products to the UK

Zero Rated Income

Sales Shipped Outside the UK

Zero Rated Income

If you’re shipping goods outside of the UK then, although these will be zero rated for UK VAT purposes, you may also need to consider your tax liabilities for those countries too. 

Each country's rules may be slightly different, so we would strongly recommend speaking with an advisor in the country you are planning on shipping to. This might seem like a lot of headache if you are shipping all around the world, however, it is better to be safe than sorry.‍


Shopify charges a monthly fee for using their platform plus payment processing fees and sometimes you’ll also be billed for other things like installed apps through Shopify too.

You’ll need to account for these fees and ensure that you apply the correct VAT rates too.

‍If your business is established in the UK then Shopify invoices its fees to you via their Shopify International Limited legal entity which is incorporated in Ireland.

Different rules apply depending on whether or not you have provided Shopify with your VAT number. The reason for this is that the place of supply for services and digital services are usually based on whether the supplier is working with a business (B2B) or consumer (B2C).

‍The general rule for supplies is they treat their end customer as a business if they have a VAT number and a consumer if they don’t.

This means that if you have not provided Shopify with your VAT number then they treat you as a “consumer” under VAT regulations, meaning any supplies of services to you must have VAT applied to them. 

If you are not VAT registered you won’t be able to reclaim this VAT. So in general, if this is the case, then the VAT rate you should use will be ‘‘no vat’’

‍If however, you have provided Shopify with your VAT number then they will treat you as a “business” customer and as such will not apply any VAT to their fees and instead, they will apply the reverse charge rules.

What does Reverse Charge mean?

When VAT is reverse charged it essentially means that the supplier does not charge any VAT, the customer does not pay any VAT but both parties account for it.

In Xero and QuickBooks there are specific tax rates for this type of expense:

  • Xero - Reverse Charge Expenses (20%)
  • QuickBooks - 20.0% RC SG (Reverse Charge Services 20%)

How can I double check the tax rate Shopify is charging me?

Inside your Shopify Admin you can check if you have previously entered your VAT number and if Shopify has verified it using the below steps:

  1. Navigate to your Billing page:
  2. From your Shopify admin, go to Settings > Billing.
  3. In the VAT number section, provide your VAT information:
  4. If you have a VAT number, then click Add VAT number, enter it in the space provided, and click Save.
  5. If you don't have a VAT number, then click I don't have a VAT number, and click Confirm. The VAT number is displayed as N/A.
  6. Click Save.

Shopify verifies your VAT number through the VAT Information Exchange System (VIES) and changes its status from pending to verified once the verification is complete.

‍You could also download one of your monthly bills which would show clearly if any VAT has been charged.

Cost of Goods Sold

The next piece of the puzzle is Cost of Goods Sold or COGS for short.

Until now you’ve accounted for your sales revenues and any fees that Shopify has charged you but in order to work out your gross profit, you also need to account for the cost to you of the items you sold.

Your gross profit is calculated as:

Total Revenue - Cost Of Goods Sold = Gross Profit

In other words, your sales minus and costs that are directly incurred as part of those sales.

Your Shopify fees would be one such cost as without selling the item you would not incur the Shopify payment processing fee. 

‍How to calculate the COGS for Shopify Bookkeeping

Cost of Goods Sold is the inventory cost side of things. For each item you sold you need to account for the purchase price of that item that you paid.

It’s important to note that there are two main ways of accounting for COGS:

Option 1

As you purchase inventory, you account for it directly as a cost of goods sold.

The advantage of this method is it’s easy.

The disadvantage is that it will render your monthly profit and loss reports inaccurate. 

Because you’re potentially accounting for the cost of a bulk quantity of inventory in one month, but then selling it across multiple months, your month to month P&L is inaccurate. 

Option 2

As you purchase inventory, you account for it in an inventory asset account which appears on your balance sheet rather than your profit and loss report. Then as you sell through inventory, you move the cost of that inventory from the inventory asset account to your cost of goods sold account on your P&L report.

The advantage of this method is that it produces a much more accurate monthly P&L.

The disadvantage is that it’s a bit more time consuming.

If you are looking for a more accurate monthly P&L then below we will outline the process for option 2.

Getting A More Accurate Monthly P&L

Step 1 - Account for inventory purchases to an inventory asset account

In order to keep your monthly P&L as accurate as possible you’ll need to be accounting for your inventory purchases to an inventory asset account.

The account should be set up as a current asset type account so that it appears in the correct section on your balance sheet.

As you account for inventory purchased to that account it’s value will increase reflecting that you have an increase in “assets”, in this case inventory.

Costs to include are:

  • Purchase price of the item
  • Packaging costs
  • Cost of shipping to your warehouse
  • Import duties paid

All of these items make up the landed cost of your inventory. The landed cost of an item is essentially the price you paid for the item from your supplier plus the cost to prepare that item for sale. All the costs associated with getting the item onto a shelf ready to sell effectively.

Step 2 - Account for inventory sold to a cost of goods sold account

You’ll need to work out how many units of each product you have sold each month and what the cost of those items were, that would give you your total COGS for the month.

To work out your cost per item you should sum up all of the costs we detailed above in step 1 and divide by the number of units you purchased.

‍For example if you purchased 1,000 units of an item and your costs were as follows:

Purchase price of 1,000 units: £2,500

Packaging costs: £100

Cost of shipping: £300

Import duties paid: £600

The total cost was £3,500, so per item that works out at £3.50 each.

‍Therefore your landed cost per item is £3.50 and this is the cost you’d use to work out your cost of goods sold each month.

The calculation would be:

Number of Units Sold x Landed Cost Per Unit = Cost of Good Sold

As you can see this quickly can become quite a handful, separating out your sales revenues by destination and tax rate and working out your cost of goods sold.

To do all of this yourself manually and get it all right takes patience and a lot of time. That’s why most Shopify sellers use accounting integrations like Link My Books or work with e-commerce specialist accountants such as

Which reports to use from Shopify

If you’re wanting to do all of this manually then you’ll need to know what data to use and where to get it from. Shopify does have some pretty good reports that we can use.

You can use the Shopify Sales by billing location report to get a snapshot of your sales for each month split by country.

Shopify sales by billing location report screenshot

The sales by billing location report contains the following columns which we will use:

  • Country
  • Total Sales

You will also need to grab your Shopify Fees figures which are available via the Payouts page on Shopify.

Export all your payouts for a month and then total up the Fees column.

Shopify sales export layout

What to do with these figures?

Now that you have the figures from the payout report you can begin to enter them into your accounting software or spreadsheet.


You will need to sum up your sales into the categories we discussed earlier:

Sales group

Typical VAT rate

Sales of standard rated products to the UK

20% VAT on Income

Sales of reduced rated products to the UK

5% VAT on Income

Sales of zero rated products to the UK

Zero Rated Income

Sales shipped outside the UK

Zero Rated Income


Total up the fees for each month using the Payouts file you exported.

If you have provided your VAT number to Shopify then Shopify is NOT charging VAT on their fees. Shopify VAT can vary depending on the region you're selling to but luckily Shopify do try their hardest to help sellers out with this process. Alternatively, you can find a Shopify calculator online to reduce some of the manual work involved!

Alternatives to doing this manually?

As you may be seeing by now, doing this manually is going to take time and patience and even so it is going to be pretty susceptible to human error.

Most Shopify sellers decide that this task is something they don't want to spend much time on each month. So what are your options if you too decide this?

  1. Get your accountant/bookkeeper to do it manually
  2. Use software to automate it yourself
  3. Get Ecommerce Accountants to do it using software

Using an accountant or bookkeeper

If you use an accountant or bookkeeper then this will definitely save you some time. The downside is that they will charge you per hour for doing so. The likelihood is that it will take them just as much time as it would have taken you and this could easily end up costing you a few hundred pounds per month just for data entry.

Use software to automate it yourself

Using software would be most Shopify sellers' preferred choice. This is quick, accurate and cost effective. One such tool is Link My Books.

Link My Books hooks up directly to your Shopify account and accounting software such as Xero or QuickBooks and posts summaries of each of your Shopify payouts following the same format as we discussed above. It also handles all other payment gateways if you're making sales via PayPal, Klarna, etc. or via Shopify POS for example.

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You can Try Link My Books for 14 Days Free!

Get Ecommerce Accountants to do it using software

Ecommerce Accountants partnered with Link My Books to bring you the best of both worlds. You get the knowledge and experience of Joe and his team at Ecommerce Accountants and then the automation super power that is Link My Books.

Link my Books and Ecommerce Accountants have been working together since November 2020 to help alleviate the headache of not just Shopify but Amazon, eBay and Etsy accounting too.

With Link My Books automating your Shopify bookkeeping and Ecommerce Accountants taking care of everything else you can sit back and relax knowing that your accounts will be spot on and efficient.

Why is accounting software needed for Shopify business?

Accounting software is essential for Shopify businesses because it streamlines financial management, automates bookkeeping tasks, improves accuracy and efficiency, and provides real-time financial insights.

Read on to learn more about how accounting software can benefit your Shopify business.

Streamlines financial management

Accounting software makes money matters easy. It sorts out cash flow, tracks sales and expenses, and updates records in real time. This way, your Shopify business stays on top of its finances.

Smart money management leads to better growth choices. You can see where your funds go and plan for the future with ease. Plus, it saves you time! No more late nights counting cash or chasing receipts; this tool does it all for you.

Using accounting software lets us focus on what matters most: growing our Shopify stores!

Automates bookkeeping tasks

Using software helps us do bookkeeping tasks faster. It adds sales, costs, and taxes for us. It also checks that the numbers match what's in the bank account. With this tool, we don't have to enter data by hand or add up numbers ourselves.

This saves us time and keeps errors low. We can spend our time doing other important jobs for our Shopify business instead.

Improves accuracy and efficiency

Using accounting software for Shopify business helps a lot. It makes our work correct and quick. Mistakes in bookkeeping can cost us money and time. The software does a great job with no errors. This means we have more time to focus on other parts of our business.

The system also updates financial data in real-time. This lets us see how our Shopify store is doing at any moment. We don't need to wait until the end of the month or year to find out if we are making a profit or loss.

Provides real-time financial insights

We get up-to-date money facts with accounting software. This is key for our Shopify store. It lets us see how much we make and spend right away. We can use this to make good business choices fast.

Without it, we may miss out on chances to grow or save cash. Plus, seeing real-time data helps us avoid surprise costs later on!

The Best Accounting Software for Shopify Bookkeeping

When it comes to Shopify bookkeeping, two top contenders for the Shopify best accounting software are Xero and QuickBooks Online.


xero logo

Xero is one of the best accounting software options for Shopify bookkeeping. It's popular among accountants, eCommerce businesses, and Shopify users because it provides a range of features to streamline financial management.

With Xero, you can automate bookkeeping tasks like invoicing and reconciling transactions, saving you time and effort. It also improves accuracy by syncing with your Shopify store in real-time, giving you up-to-date financial insights.

Xero integrates seamlessly with Shopify & Link My Books, making it easy to track sales and inventory data. Its user-friendly interface helps you navigate your finances effortlessly. Overall, Xero is a powerful tool for managing your Shopify business's accounting needs.

QuickBooks Online

QB logo

QuickBooks Online is one of the best accounting software options for Shopify bookkeeping. It helps streamline financial management by automating various bookkeeping tasks. With QuickBooks Online, you can easily track expenses and income, reconcile financial records regularly, and maintain accurate inventory records.

It provides real-time financial insights, allowing you to monitor your business's financial health at any time. Its user-friendly interface makes it easy to navigate and use for both accountants and eCommerce businesses.

Integration with Shopify & Link My Books is seamless, ensuring that your sales and financial data are synced accurately.

Overall, QuickBooks Online is a reliable tool that can improve the accuracy and efficiency of your Shopify bookkeeping process and one of the easiest ways and best Shopify QuickBooks integrations!

How to Choose the Best Shopify Bookkeeping Software

When it comes to selecting the best Shopify bookkeeping software, consider the features and criteria that are important for your business needs, such as integration with Shopify and a user-friendly interface.

Features and criteria to consider

When choosing the best Shopify bookkeeping software, there are certain features and criteria to consider. Integration with Shopify is crucial for seamless data transfer between platforms.

A user-friendly interface makes it easier to navigate and use the software effectively. Look for features like automated invoicing, expense tracking, inventory management, and financial reporting tools.

It's also important to ensure that the software complies with tax regulations and can integrate with tax software if needed. Lastly, consider the pricing plans and customer support options offered by the accounting software provider.

Integration with Shopify

Integration with Shopify is a key consideration when choosing accounting software for your Shopify business. With seamless integration, you can automate and streamline your bookkeeping tasks, saving you time and reducing the risk of errors.

Integration also allows for real-time syncing of sales data, inventory levels, and customer information between your eCommerce platform and accounting software. This means you have up-to-date financial insights that are crucial for making informed decisions about your business.

Look for accounting software that offers easy integration with Shopify to ensure smooth operations and accurate financial management.

User-friendly interface

Having a user-friendly interface is crucial when choosing accounting software for your Shopify business. It makes it easier for accountants, eCommerce businesses, and Shopify eCommerce users to navigate through the software without any hassle.

With a simple and intuitive interface, you can quickly access all the necessary features and functions needed for efficient bookkeeping. This not only saves time but also ensures accuracy in managing your financial records.

A user-friendly interface helps streamline the process of entering data, generating reports, and analyzing financial information. It creates an enjoyable experience for users and allows them to focus more on their core business activities rather than struggling with complex software interfaces.

Shopify Bookkeeping Automation Integrations

To make Shopify bookkeeping easier and more efficient, it's important to consider automation integrations. These integrations allow you to seamlessly connect your Shopify store with accounting software or other Shopify tools that can automate various bookkeeping tasks.

One consideration is integrating your Shopify store with accounting software like Xero or QuickBooks Online. These platforms can automatically sync your sales data, expenses, and other financial information from Shopify, eliminating the need for manual data entry.

This saves time and reduces the risk of errors.

Another consideration is integrating with inventory management systems or POS (Point of Sale) solutions. 

By connecting these tools to your Shopify store, you can automatically update inventory levels and track sales in real-time.

This helps you maintain accurate records without having to manually reconcile between different systems.

Lastly, consider integrating tax software with your Shopify store for managing sales taxes. These integrations can help ensure compliance with tax regulations by calculating taxes owed based on where customers are located.

It simplifies the process of collecting and remitting taxes so that you stay on top of your tax obligations.

By leveraging these automation integrations for Shopify bookkeeping, you can streamline processes and save valuable time while maintaining accurate financial records for your eCommerce business.

Shopify and Sales Taxes

Managing sales taxes is a crucial aspect of Shopify bookkeeping, and it requires careful considerations. Integration with tax software is essential for accurate calculations and compliance with tax regulations.

Considerations for managing sales taxes

Managing sales taxes is an important aspect of running a Shopify business. It's crucial to consider a few key factors when it comes to managing sales taxes effectively. First, integrating your Shopify store with tax software can help automate the process and ensure accurate calculations.

This will save you time and effort while reducing the risk of errors. Second, it's essential to stay compliant with tax regulations in your jurisdiction. Familiarize yourself with the rules and requirements, and make sure your business is meeting all necessary obligations.

By taking these considerations into account, you can streamline your sales tax management and avoid potential issues down the line.

Integration with tax software

To make Shopify bookkeeping easier, it's important to integrate your accounting software with tax software. This integration allows for seamless management of sales taxes and ensures compliance with tax regulations.

By connecting your Shopify store with tax software, you can automate the calculation and collection of taxes, saving time and reducing errors. It also allows you to generate accurate reports and easily file your tax returns.

With this integration in place, you can focus on running your business while ensuring that your sales taxes are properly managed.

Compliance with tax regulations

Complying with tax regulations is crucial for any Shopify business. It's important to understand and follow the rules set by tax authorities to avoid penalties or legal issues. This includes properly managing sales taxes, integrating with tax software, and ensuring accurate record-keeping.

By staying on top of your tax obligations, you can ensure that your Shopify business operates smoothly and avoids any unnecessary problems in the future.

So be sure to keep track of your sales taxes, integrate with tax software for easier management, and stay compliant with all tax regulations relevant to your business. It's an essential part of running a successful Shopify store while maintaining good financial practices.

Best Practices for Shopify Bookkeeping

Regularly reconcile financial records, track expenses and income, and maintain accurate inventory records to ensure the accuracy and efficiency of your Shopify bookkeeping.

Regularly reconcile financial records

To keep your Shopify bookkeeping accurate and up to date, it's important to regularly reconcile your financial records. Reconciling means comparing your bank statements with your accounting software to make sure everything matches up.

This process helps identify any discrepancies or errors that may have occurred. By doing this regularly, you can ensure that your financial data is accurate and reliable for making informed business decisions.

So make it a habit to reconcile your records on a consistent basis to maintain the integrity of your Shopify bookkeeping.

Keep track of expenses and income

To effectively manage your Shopify business, it's important to keep track of your expenses and income. This means recording all the money that comes into your business from sales and other sources, as well as tracking all the money you spend on things like inventory, shipping, and Shopify transaction fees.

By doing this regularly and accurately, you'll have a clear picture of your financial health and be able to make informed decisions about how to grow your business. Whether you use accounting software or just a simple spreadsheet, keeping track of expenses and income is crucial for staying organized and maximizing profitability.

Maintain accurate inventory records

To effectively manage your Shopify business, it's crucial to maintain accurate inventory records. This means keeping track of the products you have in stock and their quantities. By doing so, you can avoid overselling or running out of popular items.

Accurate inventory records also help you make informed decisions about restocking and purchasing new products. Regularly updating your inventory records ensures that your financial statements reflect the true value of your inventory and helps you stay organized when fulfilling customer orders.

So, whether you use a manual spreadsheet or an automated inventory management system, maintaining accurate inventory records is essential for smooth operations and financial stability in your Shopify business.

How to reconcile payments into the bank from Shopify & other payment gateways

With Shopify merchants have the ability to accept payments via Shopify Payments and also through a wide variety of other payment gateways too.

Link My Books works for all payment gateways through one single connection to your Shopify account.

Shopify Payments

For sales paid via Shopify Payments, Link My Books generates one settlement summary report for each payout you received from Shopify. This means that the invoices you send to Xero or QuickBooks from Link My Books will match exactly the amount Shopify deposited into your bank account. 

So it’s nice and easy to reconcile directly on your bank reconciliation page in Xero or QuickBooks. Satisfying too!

Other Gateways

If you are accepting other payment gateways such as PayPal, Klarna and Clearpay, Link My Books will generate a settlement summary report once per month for each gateway summarising the sales and refunds.

‍These monthly summaries will be cleared through a clearing account per payment gateway‍

What is a Clearing Account?

A Clearing Account, also known as a Suspense or Holding Account, is an account where funds from payment providers that are in transit or as yet undeposited into your bank account are accounted for.

We use these clearing accounts to record the funds that are expected from each third-party payment gateway, which have yet to be deposited into your bank account.

‍How many clearing accounts do I need?

One for each payment gateway you accept payments through. Don't worry we create these in your chart of accounts for you automatically as they are needed so no action is required from your side.

How do I reconcile these payment gateway clearing accounts?

STEP 1: Send the Link My Books settlement summary report to Xero or QuickBooks. This will debit the clearing account with the net value of your sales minus any refunds via that payment gateway.

STEP 2: Allocate any deposits from the payment gateway to the relevant payment gateway clearing account. This will credit the clearing account.

STEP 3: Download your monthly fees invoice from each payment gateway and account for those directly in Xero or QuickBooks separately.

‍There can sometimes be a balance left in the clearing account at the end of each month, nothing to worry about - this is usually down to funds yet to be deposited into your bank account for sales that occurred during that month.

The Full Process

Below is an example of a PayPal settlement summary report produced by Link My Books. We will use this example to walk through the entire process from start to finish.

Some payment processors have bank feeds into Xero or QuickBooks which can be utilised using Option 1 below, for those that don't (or if you'd prefer to skip the bank feeds) follow Option 2 below.

Note that even though this example is for PayPal, the same general process applies to any other payment gateway too.

  • Option 1 – Using the PayPal bank feed (Xero only)
  • Option 2 – using a manual journal entry

Option 1 – Using the PayPal bank feed

Full walkthrough of the process

Below is an example of a PayPal settlement summary report produced by Link My Books. We will use this example to walk through the entire process from start to finish.

Some payment processors have bank feeds into Xero or QuickBooks which can be utilised using Option 1 below, for those that don't (or if you'd prefer to skip the bank feeds) follow Option 2 below.

👉 Note that even though this example is for PayPal, the same general process applies to any other payment gateway too.

  • Option 1 – Using the PayPal bank feed (Xero only)
  • Option 2 – using a manual journal entry

Option 1 – Using the PayPal bank feed

If you’re using the PayPal bank feed with Xero already then this is the option for you.

Let’s look at an example for one month:

Shopify Paypal

Unlike Shopify Payments, payouts from Shopify-PayPal will not have a matching deposit into your bank account.

This is because the funds from these sales go into your PayPal balance.

To counter this Link My Books allocates these payout balances to the Shopify Gateway Clearing account. So in our example, the £239.38 amount would be allocated to that account as below:

Sales Fees

On the PayPal bank feed in Xero the corresponding payments would look like this:


And the PayPal fees like this:


We will allocate the PayPal deposit amounts to the Shopify Gateway Clearing account and PayPal fee line items should be allocated directly to an account you use for PayPal payment processing fees:


This will clear off the 239.38 amount Link My Books allocated to the same account via the settlement invoice, which you can validate by running an Account Transactions report for the Shopify Gateway Clearing account:

Shopify Gateway Clearing Transations

Next, you should read our help article on Using bank rules in Xero to speed up Shopify-PayPal reconciling

Option 2 – Using a manual journal entry

The second option is if you are not using the PayPal bank feed. In this section, we will show you how to reconcile your Shopify-PayPal settlement invoices generated by Link My Books with the PayPal Activity Download report, as well as how to account for your PayPal fees.

Link My Books generates Shopify-PayPal settlements based on the information available from Shopify. Since PayPal does not pass the information about their fees to Shopify, we are unable to include PayPal fees directly in the settlements either.

Contents of this section

  • Step 1 – On PayPal, download the report of your activity for the month
  • Step 2 – Confirm the Link My Books report matches PayPal
  • Step 3 – Allocate PayPal deposits to the clearing account
  • Step 4 – Account for your PayPal fees

Step 1 – On PayPal, download the report of your activity for the month

Log in to your PayPal account and navigate to:

Activity > Reports > All Reports > Activity download


👉 Important - Once you download the CSV file from PayPal you will need to filter the column “Custom Number” to show only “Shopify” transactions.

The columns we are otherwise interested in are the Gross, Fee and Net columns, so sum those up to show the totals at the bottom like this:

Paypal Activity Data

Step 2 – Confirm the Link My Books report matches PayPal

Since Link My Books generates one Shopify-PayPal settlement report per month, all we need to do next is confirm that the figure shown in the PayPal report matches the value of the settlement in Link My Books for that month.

In our example the £49.95 amount shown on Link My Books matches the 49.95 value in the PayPal data:

Shopify Paypal

Step 3 – Allocate PayPal deposits to the clearing account

When you post a Shopify-PayPal settlement to your accounting platform, Link My Books adds a line to allocate the total amount to the Shopify Gateway Clearing account.

When you withdraw funds from PayPal, those deposits should be allocated to the Shopify Gateway Clearing account (assuming that you are only using the PayPal account for Shopify and nothing else).

At the end of the month, the balance of the Shopify Gateway Clearing account should reflect your total PayPal fees.

In our example, £49.95 was allocated to the Shopify Gateway Clearing account for the invoice generated by Link My Books and £47.00 from deposits into the bank from PayPal, leaving £2.95 – which is the amount of the PayPal fees.

Step 4 – Account for your PayPal fees

Now you need to account for the PayPal Fees and balance off the Shopify Gateway Clearing account, luckily you do that in one entry in your accounting software.

In Xero, this can be achieved via a Bill entry:

New Bill

In QuickBooks, this can be achieved via a Journal entry:

Journal Entry

Once you have done this your Shopify Gateway Clearing account balance should be showing as £0.00.

FAQ on Shopify Bookkeeping 

Does Shopify come with accounting software?

No, Shopify does not come with accounting software built-in. However, you can integrate third-party accounting software with your Shopify store to manage your finances more efficiently.

What accounting system works best with Shopify?

The best accounting systems for Shopify are Xero and QuickBooks Online. These software options are popular among Shopify businesses because they offer features that streamline financial management, automate bookkeeping tasks, and provide real-time insights into your business's finances. Automation software like Link My Books also makes the integration process from Shopify to Xero & QuickBooks very smooth.

What is Shopify bookkeeping?

Shopify bookkeeping means keeping track of all your shop's money details. You keep a record of sales, costs, and fees on your Shopify store.

Outsource to a professional

Outsource professional

As you can hopefully see from this guide, setting up your bookkeeping system can be fairly technical and there are a lot of considerations to think about. If you’re a business owner you might be learning all of this content and only using it once. If you would prefer to leverage your time then we would recommend outsourcing this to a professional.

If you are a Shopify seller and would prefer to outsource the set-up and maintenance of Link My Books, alongside your bookkeeping solution, then we would strongly recommend speaking with Ecommerce Accountants.

Ecommerce Accountants are the leading accountancy in the UK for ecommerce businesses and we have been working closely alongside their friendly team for a number of years. Because of this, we believe that they understand Link My Books inside out and should be the go-to people for handling your bookkeeping and accounting needs.

Automate your Shopify Bookkeeping Today!

Ready to take control of your Shopify business's finances? Start implementing effective bookkeeping strategies and streamline your financial management today. Explore the power of Link My Books and discover how Ecommerce Accountants can support your bookkeeping and accounting needs. Automate your Shopify bookkeeping and focus on growing your business with confidence. Get started now and pave the way for financial success! Sign up for a FREE 14 Day Trial Now!

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Accurate Ecommerce Accounting

Accurate Ecommerce Accounting

On Autopilot

Save time and money by automating your bookkeeping
All sales, refunds, fees and taxes accurately accounted for
Automatic bank deposit matching with Xero & QuickBooks
Built in support for VAT, GST and Sales Tax
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Link My Books - Bookkeeping for e-commerce sales
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Dan Little