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.
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More Questions
Can QuickBooks handle inventory tracking for my business?
QuickBooks Plus and Advanced can track inventory, calculate cost of goods sold, and set reorder points. Basic retail or wholesale operations work well with the built-in features. More complex needs like manufacturing or multi-location tracking may require third-party integrations.
Read answerShould I use accrual accounting for my e-commerce store?
In most cases, yes. Accrual accounting matches revenue with the costs that generated it, which matters when you hold inventory and sell through platforms with delayed payouts. Cash basis works for very small stores but starts creating blind spots as you grow.
Read answerHow do I register for Virginia withholding tax?
Register through Virginia Tax's online iReg system. You'll need your federal EIN and basic business information. Registration is free and you'll receive your withholding account number within a few business days.
Read answerWhat does it mean to reconcile my accounts?
Reconciling means comparing what your bank statement shows against what your accounting software shows, then fixing any differences. It confirms your books match reality.
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's the Virginia unemployment tax rate for new employers?
New employers in Virginia typically pay 2.5% on the first $8,000 of each employee's wages annually. After you build employment history over a few years, your rate becomes experience-based and can drop significantly if you have few unemployment claims.
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