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Clearing accounts for e-commerce sellers

Clearing accounts for e-commerce sellers
 

Introduction

The vast majority of e-commerce sales are processed electronically by credit card or other digital payment tools. Sellers rely on a number of 3rd party providers to support their e-commerce sales including seller marketplaces such as Amazon, payment processors such as Stripe and PayPal and e-commerce platforms such as Shopify and Squarespace.

To properly account for your e-commerce sales, you will need to maintain a ledger for each provider that collects funds from your customers. These providers should be configured much the same way you would a business checking account.

You may be tempted to manage your e-commerce sales by booking transactions to an “undeposited funds” account. However An undeposited funds account will not adequately address the numerous transaction types (sales, sales related expenses, refunds and reimbursements) nor will it simplify the process of reconciling payout deposits.

The solution is to configure a clearing account for each provider that collects funds from your customers and makes payout deposits to your business bank account. Clearing accounts are configured the same way you would any other bank account within your accounting file. Clearing accounts will provide a clean way to manage the ledger from each provider, tracking your itemized sales, sales related expenses, refunds and reimbursements.

For example, let’s assume you sell on Amazon marketplace. To properly track your e-commerce sales and expenses, you would configure a bank account within your accounting file titled “Amazon Marketplace Clearing”. You would then configure all of your Amazon sales, expenses, refunds and reimbursements to export from Greenback to the new clearing account within your accounting file. Lastly, as Amazon makes payout deposits to your business bank account, you will simply treat those deposits as transfers from the Amazon Marketplace Clearing account to your business bank account.

How it works

  1. Your data is messy. You sell across multiple marketplaces, payment providers & e-commerce sites. The first step is to create clearing accounts for each provider that collects funds.
  2. Greenback consolidates and normalizes your sales data including sales related expenses like payment processing fees.
  3. Export transactions to each clearing account within your accounting file
  4. You will categorize your payouts as transfers from the appropriate clearing account

Identify what clearing accounts you will need

You will need a clearing account configured within your chart of accounts for each provider that collects funds from your customers. Let's look at the following example:

Brewing Supply Co. sells brewing products online using a Squarespace e-commerce web site. The company accepts both credit cards, processed by Stripe, and PayPal as acceptable forms of payment. In addition to selling on their own web site, the company also sells their products on the Amazon Marketplace.

Example: In this example, the company will need to setup the following clearing accounts:

  • Stripe Clearing
  • PayPal Clearing
  • Amazon Clearing

Note: Amazon, being a seller marketplace, utilizes their own payment processing and fulfillment services. Amazon will collect payment from your customer and make payouts to your bank account. We call this "Branded Payments".

Creating clearing accounts in QuickBooks Online

To create a new clearing account in QuickBooks Online, visit "Accounting > Chart of Accounts" from the left side navigation.

From the Chart of Accounts page, choose the "New" button from the top right part of the page. The "Create new Account" modal window will open. From here you will want to create a new account with the following parameters:

  • Account Type: Bank
  • Detail Type: Checking
  • Name: Amazon Marketplace Clearing (we suggest using the name of the integration following by the word "clearing")

The remaining fields are optional and you may use them at your discretion. QuickBooks may also ask "When do you want to start tracking your finances from this account in QuickBooks?". Feel free to choose an appropriate date for when you wish to start tracking transaction from Greenback. Unless otherwise instructed, set the beginning balance to $0 (zero).

Click "Save & Close". Repeat this step for each integration that requires a clearing account.

Creating clearing accounts in Xero

To create a new clearing account in Xero, visit "Accounting > Chart of Accounts" from the top navigation.

From the Chart of Accounts page, choose the "Add Bank Account" button from the top of the page. The "Find Your Bank" page will open. From here type "Greenback.com". You should receive the message "We couldn't find "greenback" in the US, Add it anyway?". Click the "Add it anyway" link.

Now you will be prompted to "enter your bank account details". Use the following parameters:

  • Bank: Greenback.com
  • Account Name: Amazon Marketplace Clearing (we suggest using the name of the integration following by the word "clearing")
  • Account Code: optional, complete at your own discretion.
  • Account Type: Other
  • Account Number: complete at your own discretion (Xero may require you to complete this field).
  • Currency: complete at your own discretion

Click "Save & Close". Repeat this step for each integration that requires a clearing account.

Export your transactions

Now that you have clearing accounts configured, you can begin to export transaction from Greenback to your accounting file. For a more detailed guide on exporting your transactions, please check out our articles on "Exporting Data To Your Accounting File"

Reconciling and categorizing your payout deposits

Because you are containing all of your e-commerce related transactions to individual clearing accounts, categorizing your payout deposits is extremely easy.

Important Note: In most all cases, payout deposits will not match up cleanly to specific sales transactions. The provider will likely have rules that dictate how often and how much they payout. This is often to protect them from chargebacks and refunds they may have to issue back to your customers.

Because you have already booked your sales and sales related expenses to the clearing account, you will not be treating payout deposits as sales (as this would result in the overstatement of revenue). Instead, all payout deposits are treated as transfers from the appropriate clearing account to your business checking account. Let's look at an example:

Brewery Supply Co has sold 145 orders of their brewing supplies over the past 30 days on the Amazon Marketplace. The company has already exported from Greenback the details of each sale to the Amazon Marketplace clearing account within their accounting file. Amazon has then deposited $12,900 to the business checking account. To categorize the deposit, the business has created a rule within their accounting file to treat all deposits from Amazon as Transfers from their Amazon Marketplace Clearing account to their business checking account.

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