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
What's the difference between employees and independent contractors?
The core difference is control. Employees work under your direction with set schedules and tools you provide. Contractors run their own business and you hire them for a result, not ongoing supervised work.
Read answerHow do I record Shopify sales in QuickBooks?
Record gross sales separately from the bank deposit since Shopify deducts fees and refunds before paying you. Use a clearing account to track what Shopify owes you, then match payouts to your bank deposits.
Read answerWhat is retainage and how do I record it in my books?
Retainage is a percentage of each payment that clients hold back until a construction project is complete. In your books, it's recorded as a separate receivable asset that gets collected when the job wraps up.
Read answerHow do I know if I need to collect sales tax in other states?
You need to collect sales tax in states where you have economic nexus, which usually means exceeding $100,000 in sales or 200 transactions. The rules changed in 2018, so physical presence is no longer required.
Read answerHow do I calculate how much sales tax I owe?
Multiply your taxable sales for the period by the applicable tax rate. In most of the Richmond area, that's 5.3%. The key is making sure you've correctly identified which sales are taxable and reconciling against what you actually collected.
Read answerShould my restaurant use cash or accrual accounting?
Most small restaurants do well with cash accounting. It's simpler, matches cash flow reality, and the IRS allows it for businesses under $29 million in annual revenue.
Read answer
