How do I track cost of goods sold when I sell online?
COGS for online sellers includes everything it takes to get a product ready to sell. That means the product cost from your supplier, inbound shipping or freight, customs duties if you import, and packaging materials. These are your landed costs and they form the basis of COGS.
What doesn’t go into COGS: platform fees from Amazon or Etsy, payment processing fees, advertising, storage fees, or outbound shipping you charge customers. Those are operating expenses. They affect your profit but they’re categorized separately from the cost of the goods themselves. Getting this distinction wrong throws off your gross margin and gives you a misleading picture of profitability.
Most e-commerce businesses use average cost for inventory valuation. If you buy 100 units at $5 and later buy 100 more at $6, your average cost per unit becomes $5.50. When you sell something, $5.50 comes out of inventory and goes to COGS. This is simpler than tracking specific batches and works well for most online sellers with many SKUs.
Set up your accounting software to track inventory properly. In QuickBooks, this means enabling inventory tracking and creating inventory items with your cost information. When you record a sale, the system automatically moves the cost from inventory to COGS. If you’re selling on multiple platforms, you need those sales flowing into your accounting system through integrations or manual entry.
Physical inventory counts matter more than most online sellers realize. Shrinkage, damaged goods, and returns all affect your numbers. Count monthly if you’re active and reconcile against what your system shows. Discrepancies mean either your cost tracking is off or you have inventory problems to address. A Richmond bookkeeper familiar with e-commerce can help you set up a count schedule that makes sense for your volume.
Returns need special handling. When a customer returns something, you’re taking inventory back and reversing the COGS entry. If the item can be resold, it goes back into inventory at original cost. If it’s damaged and unsellable, it becomes a loss. Your accounting needs to reflect what actually happened to that returned item.
For businesses with many SKUs or multiple sales channels, inventory management gets complicated quickly. Integration tools like A2X or Webgility can pull sales data from platforms into QuickBooks and handle the COGS entries automatically. The setup takes work upfront but saves hours of manual reconciliation each month.
The goal is knowing your true gross margin by product or product category. If you’re selling something for $25 and your landed cost is $12, your gross margin is 52%. But if you’ve been treating platform fees as COGS, that margin number has been wrong this whole time. Accurate COGS tracking lets you see which products actually make money and which ones just seem profitable until you do the math correctly.
Greater Richmond's Small Business Bookkeeper
The Next Step:
A Short Conversation
Fifteen minutes to tell us what you're dealing with. We'll let you know how we can help and give you a clear price quote.
More Questions
How do I handle returns and refunds in my books?
Returns and refunds should reduce your sales revenue, not create new expenses. Record customer refunds as credit memos or refund receipts, and track vendor returns as credits against future purchases.
Read answerHow do I fix mistakes I made in QuickBooks?
Most QuickBooks mistakes can be fixed by editing the original transaction or creating a journal entry to correct it. The right approach depends on whether the transaction has been reconciled and whether you've already closed the period.
Read answerWhen should I switch from doing my own books to hiring a bookkeeper?
There's no universal trigger point. The signs are usually falling behind on reconciliation, making recurring errors, or spending hours each month on something that pulls you away from actually running your business.
Read answerWhat financial reports should I be reviewing every month?
Start with the profit and loss statement, balance sheet, and cash flow statement. Add accounts receivable and payable aging reports to track money coming in and going out. Monthly review catches problems while they're still small.
Read answerWhat happens if I don't keep good financial records?
Poor records lead to expensive tax prep, missed deductions, IRS audit risk, and cash flow surprises. Banks won't lend without clean financials, and selling your business becomes nearly impossible.
Read answerHow do I record daily sales from my POS system in QuickBooks?
Record a daily sales summary from your POS end-of-day report rather than individual transactions. Break out payment types and use a clearing account for credit card sales to match deposits when they arrive.
Read answer
