The space that was missing automation was revenue accounting. And what is revenue accounting? It’s something that accountants generally don’t do. Think about until the end of the month, because they’re busy paying bills. They’re busy dealing with their clients. They’re doing the bank feed. What are all the expenses?

And often it becomes a huge problem or it gets delayed. And that’s why your books don’t get done.

You have to understand the basics of accounting because accounting is the language of business. You really have to understand. How a financial statement, an income statement works, a balance sheet. You do have to understand the difference between income and assets.

First thing is you need to give value to accountants and bookkeepers. That’s the first thing. A lot of people think I can’t afford a bookkeeper. I’m not going to do it. Every single day. There’s transactions that happen in your business, whether they hit your accounting system or not. And if they’re not being recorded, it builds up.

It creates a huge mess.

So on today’s episode, you’re going to find out how to use accounting properly to get a single source of truth for you as an online retailer. It’s a great episode. You don’t want to miss it. So stay tuned. This is the 2x e commerce podcast. Hosted by Kunle Campbell. Hey folks, welcome to the 2xEcommerce podcast.

I’m your host, Kunle Campbell, and yeah, this is the podcast dedicated to rapid growth in online retail. On today’s episode, this one really hit me personally, because from my point of view, I’ve not been one of those founders who’s been very excited about accounting and bookkeeping. Today’s episode changed that perspective totally, because.

Jason Richelson, who’s the founder of bookkeep and the guest of this podcast, gave me a masterclass as to why accurate bookkeeping and accounting actually matter. He gave me a masterclass on why accrual accounting is, should be your de facto. He explained accrual accounting in a very simplistic way that just made sense to me.

And then he gave the four reports you need to be getting from your accountants on a monthly basis, as well as nuances on tax challenges, reconciliation challenges and balance sheet challenges that essentially reveal that, okay, you might have. inventory issues. And we all know when those inventory issues occur and the impact it has on report reporting and our assets.

So if you want to get a masterclass on bookkeeping and accounting just knowing what you need to use to your strength, to grow your business as an operator, you have to listen to this episode. But before I let you. get into the next segment of the actual show. You’re listening to this definitely on some sorts of platform.

It might be Apple podcast. It might be Spotify. It might be SoundCloud. It might be YouTube. Do me one favor. There is a subscribe button on there. hit subscribe, or there’s a follow button on there, hit follow. Because when you do that, you’re sending signals to their algorithms to say, okay, this is a value to you.

And because it’s a value to you, it could be a value to other people similar to you. And when that happens, we have good numbers. We’re able to, when we pitch new guests on this podcast, we’re able to get better guests, and. It’s a win for everybody. So I shall let you go for now. Enjoy this episode I’ve had with Jason really clever chap with regards to accounting and bookkeeping.

Thank you.

Bookkeeping, I think is exactly where my entire career has led me. I actually started work at PricewaterhouseCoopers as an, as basically, not an accountant, but as a software developer building accounting software for trading desks. I eventually went on. To start a tech firm. And then I worked on a trading desk where I did accounting reconciliation for stock trades at Bluefin trading here in New York city.

And then after that, I opened a retail store, which led me into building a point of sale company. Yeah. I had, and I still own a wine store actually in California. I had a wine store in New York, but now I just have the one in California. But my experience, so I’ve had a retail store for 20 years that experience, and that’s a long story, but led me to build shopkeep, which was the first cloud based iPad POS even before square was in retail, we were in retail and that company eventually sold to Lightspeed in Canada a couple of years ago.

So I have a whole bunch of experience in retail, in e commerce, in digital payments and. But all of it is driven by my, whether it’s OCD or whatever you want to call it. I, my need to get the numbers in the right buckets lined up properly. And that’s what led us to start bookkeep and bookkeep actually started as an accounting firm.

So we had a bunch of accounting clients because I wasn’t sure exactly where to go with automating accounting. And we quickly figured out that. The space that was missing automation was revenue accounting. And what is revenue accounting? It’s something that accountants generally don’t think about until the end of the month.

Because they’re busy paying bills. They’re busy dealing with their clients. They’re doing the bank feed. What are all the expenses? Why did you take money out of the checking account? This vendor says that we owe them money and I need to reconcile all the bills first. It’s the end of the month when they’re like, Oh, I got to get on the sales in properly.

And often it becomes a huge problem or it gets delayed. And that’s why your books don’t get done. And what I realized in addition, what I realized is a lot of app developers and we’ll get into what bookkeep doesn’t in a second, but a lot of app developers build integrations to QuickBooks or zero or Sage intact in a way that accountants don’t want to use them because it’s easy for a developer to.

Sync a transaction into an accounting system. It’s very easy. You don’t have to think it’s, amount discount easy, but that’s not a cruel accounting. And when you get to scale and when you’re doing thousands of orders a day, you cannot post every order to your accounting system. It is it’s way over way too much for the accounting system to handle.

So what we realized is that a proper summarized accrual. Entry system for all sales apps and all e commerce platforms out there just really wasn’t available. And so that’s what we set out to build a couple of years ago for bookkeeping.

That’s interesting. This is why I like the backstory section of this podcast.

I didn’t realize you were a retailer. You’re an actual retailer and you have a store, an actual store in, in Los Angeles. And then you created Shopkeep, which is a POS which makes you very qualified to, to, to really, launch this book, bookkeep. Okay. Oh, yeah. That’s interesting.

Where do we start from? I want you to essentially give certain definitions for the audience, because not everybody’s aware of what accrual, accounting is. Do you want to just start with that please?

Yeah. And even to step back, I think as a business owner, as a starter of a, if you’re starting a consumer products brand or an e commerce business, any business, it doesn’t matter.

You have to understand the basics of accounting. Because accounting is the language of business. You really have to understand how a financial statement and income statement works. A balance sheet. You do have to understand the difference between income and assets. For instance, when you buy your inventory, It’s not an expense.

It’s an asset. You’re just exchanging money for inventory. And that’s an exchange on the balance sheet. And those it’s really not that complicated, but what I find is a lot of people think when they hear accounting, they just want to turn their brain off. And it really is going to help you as a business person to understand just the basics of accounting.

And what is accrual accounting? Accrual accounting just basically means. Recognizing your ink. There’s a bunch of parts of accrual accounting, but recognizing your income from what we do on the proper day So usually it’s either when you sell it if you’re in brick and mortar retail It’s going to be the same day.

They take it out of the store In e commerce it tends to be when it was shipped. So amazon Generally reports your income and they’re reporting amazon seller When it was shipped Shopify reports, your income, however, in their reporting, when it was sold. And what’s something people don’t realize is that, those reports are going to be different because Amazon reports at base of when it was shipped and Shopify, when it was sold, if you’re just looking at your reporting in their systems.

But it’s important to line those up because you also want to line up your costs for that day and your expenses associated, especially when you’re selling on Amazon seller. So basically what it just means is lining up. Your income with your expenses or your costs of goods sold into the proper day for accrual accounting or proper month, but usually it’s a proper day.

Okay. Makes sense. What is the alternative to accrual accounting and why would people want to use alternatives?

They’re really, you shouldn’t use alternatives. If the only reason people don’t use accrual accounting, the other alternative is cash based, right? So you report. Your income or your expenses when it comes into your bank account or goes out of your bank account Now that is just not used for retail It is not used for retail.

It’s not used for e commerce. You don’t do cash accounting for retail or e commerce. It tends to be used in construction, law firms, law firms don’t expect to always get paid when they send those invoices out and often their clients play months later. So they’re not going to report their income of, the 10, 000 bill in January, if they don’t expect to get paid until August.

That’s fine. Cash based accounting. Retail is high volume. It’s heavy transactions. So you’re you basically need to do accrual accounting. It needs to be booked into the proper buckets on those days because the cash hits the bank account. If if it’s Amazon seller two weeks later, and if it’s Shopify, it’s usually, a day or two later, but usually grouped.

And if it’s over the weekend, it might be a couple of days later. So it’s it, And by the way, in Canada, it’s required to be doing accrual accounting. You have to do accrual accounting in the U S once you get over 25 million by gap rules, you need to be on accrual accounting. It’s the other thing is your sales tax has to be paid based off accruals.

It’s based off when you sell it, so you basically, if you’re a retailer, you’re accrual accounting. That’s why I never even understood cash based accounting. Cause I started my retail business. 20 years ago. And I was like, why would anyone do it any other way? So I’ve always been doing accrual accounting, but it’s very simply just recognizing it when it happens.

Makes a lot of sense. Makes a lot of sense. You mentioned volume transactions and consolidating volume transactions, which is a big pain for e commerce. You want to just expand on that pain yesterday, one of our stores, recorded about 250 orders. How does that translate in from an accrual perspective on what problems can we potentially see from an accounting standpoint?

So the the way bookkeep does things versus there’s other apps out there that I. I consider backwards apps. They basically book your revenue on the cash method when it hits your bank account. A lot of these apps were developed by e commerce sellers who are like, I got this deposit from Shopify.

It’s about 70 percent of what I expected. How do I back into what it should be? And I, that’s backwards as accountants. And, we started as an accounting firm, you think forwards, you think what happened today. And then I need to reconcile to the payments that come in later to make sure that I got paid for everything that I sold today or shipped today.

So when you’re, when you do 250 orders, if it’s all through your e commerce channel, we would generate a summary entry. One entry into your QuickBooks or Xero, or Sage Intact or Anzoho Books as well that shows your gross sales, your discount separated, your refund separated, all the different sales tax grouped by, or VAT, depending on where you are.

Any gift cards. Issued and then against all your payment methods. So it’s a very simple entry where you have your sales against all your payment methods. So that might be shop pay. That might be PayPal. That might be Sezzle or after pay. You might be using Stripe directly in your Shopify store separately from shop pay.

So we’ll line all those up. So you get a balanced journal entry. Your sales must equal your payments. And by the way, when you sync transactions, you’re not You don’t have to match your sales to your payments. Exactly. That you can get around that your sales have to match your payments. It’s inherent payment reconciliation in posting summary journal entries and then reconciling to the payment deposits using clearing accounts.

So we would post a simple summary entry of all that data with proper classing or dimensions as Sage in tech talks about it into your zero or net suite or whatever books you’re using.

Over, over what time cohorts on a daily basis? Every day.

Always a day. Yeah. And that’s where the, some of the apps that that are backwards that are based off the deposits.

That’s where they get into trouble. Amazon deposits every two weeks. Your sales over the Christmas holiday are going to be huge. And your deposit comes on the 7th of January, right? So they end up having to do some tricks where they, separate that and book two entries. And one of them’s over seven days, maybe back, around that ends on December 31st, they have another entry.

That’s the couple of days in January. That just makes it very hard to run financials to, so to run your income statement by day. How much did we do the day before Christmas? You may. A lot of people don’t have any sort of rolled up reporting tools that give them that information. If they’re selling on Amazon seller, that’s also, and they’re selling on Shopify and, maybe they have other tools and they want to know, what did we actually do the day before Christmas or on Christmas?

That’s when your financials in terms of dollars, that’s when your financial system can do that as long as you’re doing daily summarized financials. And then it will break it down. Also, we could break it down by sales channel. If you’re selling on Shopify and you want to segment out your Facebook, Instagram into its own summary journal entry.

So you can see that separately or give it a different class. So a different reporting column, essentially. We can also do that for you as well with our integration.

Okay. Makes sense. I’m going to track back a little bit to, to the statement you made in regards to the importance of financial education.

To any operator of the business, whether it’s e commerce or you’re, you’re a corner store, you have to have financial education in your opinion. And from what you’ve seen, you’ve got over 20 years of experience. Where are the best places to learn to just get yourself around it without having to make mistakes, expensive mistakes on the go live with your business, which is your livelihood.

The first thing is to value, you need to give value to accountants and bookkeepers. That’s the first thing. A lot of people think I can’t afford a bookkeeper. I’m not going to do it. Every single day. There’s transactions that happen in your business, whether they hit your accounting system or not, you’re buying stuff, you’re selling stuff through multiple systems, and if they’re not being recorded, it builds up.

It creates a huge mess. So it’s very important to get a bookkeeper. There’s a lot of outsourced bookkeeping firms. We work with a lot of really great e commerce only bookkeeping firms in the U S and actually all over the world. We just talked to one actually he’s out of out of Europe.

And basically it’s important that you value that, which means you pay for that. It’s worth the money to have a. Person or a firm that can do your books so that you get statements every month so that you look at your statements every month and Listen your accountants All accounts are so busy.

They’re so overworked. There’s not enough people in accounting to get the work done That’s also why you know bookkeep exists is one reason We really have to automate a lot of this because there’s just not a lot of people to do this work so you have to understand they’re extremely busy, but they will meet with you for an hour to go over your statements you know depending on what level you’re at some of them are More controller like or CFO like that.

Fractional CFO where, they’ll structure and set that up, but you should ask them, Hey, can we go over these statements for a month? Also super important. Make sure they’re getting you statements every month. They should be getting them to you within a week or two after the close of the month.

You should be looking at your monthly statements. You should be looking, if you have access to QuickBooks or whatever system, you should run a monthly, sorry, a yearly financials with your months lined up. I do the books. for booking myself, right? I do myself. They’re all almost completely automated.

But but yeah, I look at that, how are we doing? How’s our income growing? How are our costs growing? What’s my COGS? All of that stuff comes out in your financials in a In a way that doesn’t come out of your other systems because they’re fragmented because you are, you’re not just selling on Shopify, some people might be, but generally you’re also selling on other platforms, Amazon seller, obviously.

And you have wholesale business as well, probably that doesn’t always jive with how Shopify works. You might be doing that through, just through invoices you send out or inventory management tools. So because of the fragmented nature of all the sales systems you have, your books is really where it all needs to come together.

And by the way, the important key is that it’s reconciled to your payment deposits. Because orders happen in systems that don’t get paid for it. Either by accident, or because, your front office team is I need to get this guy a replacement, I can’t figure out I’m just going to do it as a draft order and mark it as paid so that at least it ships.

Stuff like that hurts your cost of goods sold. It hurts your margin, but you need it. It’s going to happen, but you want to make sure you segment that out in your revenue. And that all comes out when you do this proper accrual accounting, where you match then and reconcile all the payment deposits to make sure your expected deposits match up to what you think they should be.

Exactly. And if you’re tracking it on a daily basis, it means it’s easier to spot mistakes. There are only so many transactions on a daily basis. And if there’s that time horizon there you’re able to just identify it fairly quickly.

But the other thing I’ll say about dailies is it’s not necessary that you’re going to look at it every day.

And we’re trying to get better about alerting you to issues we might see. Automatically. But it just means that your books are going to be good so that at the end of the month, they can close them faster. That’s really the key thing about dailies. It’s not necessarily that you’re going to look at your books every day or every week, but you have the ability to go back when you want to, to a specific day.

And your books are going to be clean so that at the end of the month, there’s only a little bit of checking that they have to do to make sure that they’re good so that they can get you those statements quickly.

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I remember the last issue we had, accounting issue we had, it was with regards to VAT reconciliation and essentially because we sell food stuff not every food category actually requires VAT and we happen to bring our e commerce manager into the same room for a totally different conversation with with our accountants.

And he just started spotting certain entries like, no, this is not VAT. This is not VAT. It the issue essentially was that what the accountants made some presumptions on what is VAT, but what VAT applies to and what it doesn’t or sales tax or those in the United States.

How do you solve that problem at the baseline? So everybody, accounts at a product level. So orders essentially serve Yeah deliver the right tax due. Yeah.

Bookkeep is actually a gateway to Avalara managed returns. So we actually, when you connect your, all your sales apps, your Shopify, your Amazon seller, all your platforms to bookkeep, we can then turn on the feature where we send that data automatically to Avalara and then we file and pay your sales tax for you.

So as part of that integration to Avalara. Avalara does have checks where if the orders aren’t set up right, it’s going to give you discrepancies that explain so that basically there’s a reconciliation of order types based on the type of product. Now, granted, you still have to have some front of office, front of house understanding of how to set up your items in your system, because if you don’t, Now, if you set up a clothing item and you don’t give it a clothing type, it might not make it, through to be understood what exactly that was.

There’s still some front of the house, but the thing about tax VAT, as well as a sales tax in the U S is it’s just so complicated and so tedious. So as an Avalara gateway we’re a partner of Avalara. We even bring on new customers who are like, I already am using Avalara and I would love to let you guys take it over for me and just do it for us.

And we are specialized. We’re specialized in revenue accounting in financial automation and we can handle that for them. And it’s important because you do need to have some knowledge in house to be able to understand. Not so much nexus, but just like the process of monthlies versus quarterlies versus annual filings.

And making sure it’s set up right and making sure it’s reconciled every month. We’ve had two customers in the last couple weeks come to us. And they had no idea that they were double paying their sales tax because all your marketplaces in the u. s Amazon seller facebook, they are required by law to pay sales tax for you So we’re actually our integration to shopify actually segments out and take those The sales tax that they withhold to pay for facebook and instagram.

They come out of your payouts As an adjustment, it doesn’t even say what it is unless you drill down into the reports. We actually pull that out. When we post our entries into your accounting system, we segment out Facebook, Instagram the sales tax withheld so that you understand in your books okay, this money I don’t have to pay.

But in addition, our integration also understands that with Avalara, that those were already paid. It’s. Worth it in the time that it takes to file sales tax correctly in the time that it takes to deal with the notices and fines that you’re going to get, no matter what, no matter how good you are at it.

It’s really difficult to have a firm like bookkeep handle and automate your sales tax for you. It’s worth it for peace of mind and just having the specialized knowledge of how to file that. It’s hard to find that in house. Part of what we see with bookkeep is that whether you’re an in house CFO and you have a team.

or you’re an accounting firm, it’s really just hard to find people who are specialized and can handle the volume of the work that has to get done. And so that’s really where we’re trying to help.

Okay. Okay. So for those of us for listeners who are, who have bookkeepers at the moment how does bookkeep essentially help that process with their

bookkeepers?

We, Our customers are bookkeepers. So bookkeepers love us and accountants love us. Our customers really are the accounting teams. None of these. Bookkeepers want to download spreadsheets, find the proper reports in Amazon, which is really difficult and then manually book these entries. They if they have the specialized knowledge to understand where to get those reports in Amazon Seller versus Walmart versus Shopify, If you could find someone who understands that all the differences and the ins and outs, they still don’t want to be doing that manual work.

So it’s much cheaper to use bookkeep. We start at 60 a month. If you’re doing up to 3 million in revenue in the U. S. And so it’s a very inexpensive, we have a specialized team and also our customer care team are controllers. So bookkeepers interface well with us. We understand what they’re talking about.

That’s one of the inherent things about bookkeep is. We started this as an integration app to all these e commerce systems for accountants, because accountants don’t want transactions. Accountants want it done in an accrual summarized format. They want it to reconcile to payment deposits. They understand the accrual methods that we use to book these entries.

So yeah, bookkeepers and accountants love working with bookkeep.

Super interesting. So just moving forward. How do you, from a founder perspective, what monthly reports should I expect? Should I really be going through with my accountant, with my bookkeepers to just stay on top of my business?

There’s three reports that you’re going to get. You know your typical three reports from financials is your income statement, which is your profit and loss And so that is all your revenue at the top minus discounts minus returns, returns and exchanges those should be Pulled out and you should understand what the percentage is of your income of your revenue On returns and exchanges and then your cost of goods sold is under that So whatever the cost is of the products that were actually sold in that same time period So say it was a month.

That’s at the top of that. I often include payment processing fees in your cost of goods sold. It’s actually the number one blog post on our website. Payment processing fees are really a variable cost. The more you sell, the higher they’re going to go. They don’t belong down in expenses. They really are a cost of goods sold.

So that really should be, before your gross profit line. And then underneath is your, essentially your gross profit, your sales minus your cost of goods sold minus your payment fees. That’s your gross profit. And then, so that’s basically the operating income to the business. And then below that is your expenses, your payroll, your rent all your electricity whatever.

So that’s going to give you what your profit was or loss was for the month. Now, remember that’s only part of the picture. You can’t look at that statement. Until your balance sheet is correct. And when I say your balance sheet is correct, it means it’s very important. And even in my wine store, my wife is obsessed with this.

We use square. You must count your inventory, get your inventory value physically. You need to do a physical inventory count of your inventory. Whatever that dollar amount is needs to be adjusted into your books. Now that inventory process can be handled automatically with inventory management systems, potentially.

But it still doesn’t matter. You still need to do a physical count and that number has to be updated on your books because that will heavily. Your cost of goods sold. If you purchased 10, 000 in inventory, you sold a couple thousand dollars worth of that inventory, say 2000, and then you go and count and there’s only 7, 000 in stock.

You got to write off a thousand dollars, which goes on your P and L so if you only have 7, 000, you purchased 10 and you only sold 2000. And so there’s a lot of places that can go wrong often in the receiving function or in the cost of goods sold potentially could be off. So it’s more of an art than a science, by the way, but you want to understand those are the things that bite you in the butt.

So you don’t do this for a year and you find out, wow, this was way off. We’re going to have to take a huge adjustment at the end of the year. And we don’t even know what month that happened. We don’t even know where the mistake was. That’s it. Really. Your inventory should be at very least every month. You should do an inventory stock take and then compare it against your books.

First update your inventory management system so that it’s accurate. Whatever tool you’re using, it could be Shopify. It could be a third party tool. And then whatever that value is should equal the same value in your inventory account in your books. And if it’s not, then you need to write an adjustment.

Sometimes it, sometimes you find more, sometimes less. There’s always going to be an adjustment. So you have to do that first before you look at your income statement. Then, you must reconcile your payment deposits. Your Shopify deposits against. Now we do that automatically in a clearing account. So you’re going to have, this is a very key, important thing to understand about proper accounting and e commerce.

Every payment method has its own asset account in QuickBooks or in your accounting, right? And that’s on your balance sheet. So when you think about PayPal, PayPal has a balance. It’s not technically a bank account, but you can create it as a bank account in your books, or you create it as an asset account.

Whatever that balance is at the end of the month is better be the same balance that’s in your QuickBooks shop pay. It’s you don’t think about shop pay as a balance or Shopify payments, but you’re expecting money from Shopify. There’s a three day delay, whatever the balance is at the end of the month.

You still haven’t received all that money yet, but you need to make sure your system matched your balance and your asset account is the same balance because if it’s not, there’s either a mistake, there’s an entry missing. Generally, there might be an entry missing, maybe, these are things you need to check.

We’ve seen people, we have an example of a customer, the bookkeeper came to us and said, the client says you’re completely wrong, your numbers are wrong, he did way more sales in this, previous month, six months ago. We went back and looked at it, and yeah, they did a bunch of draft orders that they didn’t properly close out.

5, 000 worth, he did not receive those funds. But Shopify showed his income, even though he didn’t properly close them. It didn’t capture the payments in time and he couldn’t go back and do it six months later. So that’s why you need to check those payment amounts to make sure you’re getting paid for your orders every single month, bookkeep does that for you in a mostly automated fashion, but you still want to check those balances at the end of the month, go to Shopify, see what your expected payout is that hasn’t hit.

That should be the same balance. That’s your QuickBooks same goes for all your other payment methods. If you’re using after pay. Whatever they are now, we don’t always have the fees for after pay and some other payment methods. We’re working to get all that data. So with after pay or some of the others, you may have to write a fee adjustment.

So the balance is going to be a little bit higher in your books versus what’s expected.

These are by now pay later. Platforms. Okay.

Yeah. Yeah. So each one of your payment methods should have its own clearing account. That clearing account should be reconciled every end of month.

Just like your inventory account should be reconciled. Once you’ve done all that. Your bank accounts reconciled, in your books, then you can look at your income statement all your credit card transactions are in all that stuff, then you look at your income statement to see what your profit was and you have a balance sheet that tells you, I have 2, I’m expecting 2, 000 from shop pay, it’s not in my bank account, but it’s coming.

That’s what your balance sheet is telling you. And that’s where you’re going to find problems. And this is in those payment deposit clearing accounts. In your inventory account every month you’re going to find problem. Hopefully not, but you’re probably going to find problems there. And then the rest of it is pretty, your payroll and stuff.

So that all goes in, that all goes in your income statement and your balance sheet, and then your, your cashflow statement, depending on if you’re taking loans for your inventory, like there’s your cashflow statement is like. is your cashflow. It’s basically money coming in and out, money coming in from sales, money coming in, maybe from loans.

That’s not necessarily as important depending on the business as your income statement and your balance sheet, but you should get all three of those every month from your account

income statements the balances across all the payment methods your bank accounts. And what was the third one?

The, the payment accounts, the inventory, and your bank account needs to be reconciled and your credit cards need to be reconciled.

Cashflow. Cashflow was the last one. Cashflow

is the state is the other statement but all of that stuff, all those reconciliations have to get done by your accountant.

And when you’re using bookkeep, it’s real easy and it’s real fast. If you’re not using bookkeeping, you’re doing it manually. Then it becomes a real confusing, just, where the confusion comes is Shopify’s deposits. are based off of GMT, UK time zone, right? And so an accountant who’s not using bookkeep is okay, I see 2, 000 deposited from Shopify.

I don’t know. I don’t know what day that is. What’s in this deposit? And does it cover one day or two days? It’s not in the time zone that you’re reporting your income. You would think so though.

You would think so. You think that it would just sync that you set up a time zone and then that’s when it would serve credit or.

No,

they don’t. But we basically trans translate it for you. So we group it into sales days. When that deposit hits, we automatically book an entry that will match in your banking feed. So your accountant is happy. And we break it into the sales days so that you can match it up to the sales days.

So we make it really easy to reconcile those payment deposits, no matter how those batches are created.

Okay. Makes sense. Makes sense. What about draft orders? It’s come up a number of times in this conversation as a, as an issue from a data reconciliation standpoint, what is your, in your opinion, what’s the best way to account for draft orders so it doesn’t really, serve.

scare you or, come to, to disrupt the numbers later on?

One, one thing I would say, yeah, draft orders and I’m not as familiar with how they get processed, but one, one key thing with draft orders is don’t mark anything as I think you can mark it as paid manual. It’s best that you create tender types.

So in that example, I said earlier, you can create a custom tender types there. You go into settings, payment methods, and you can create a custom tender type.

So for

instance, if you’re going to, if you need to send somebody another, you need to create another order to ship a replacement, you should have a tender type that’s returned, exchanges whatever you want to call it, exchanges as a tender type, because that’s going to key in the bookkeeper to be like, okay, this order is going against the tender type and I’m not going to receive payment for it.

So I need to write that off at the end of the month against, Cost of goods sold or against my income. And we work. So one of the things, strong points about bookkeep is that we also handle a lot of point of sale locations for Shopify. Those tend to get segmented into, we, we can group that revenue into each point of sale location.

And sometimes what happens is they might use a third party payment. And when they do that you need, or they take a check, which some believe it or not you need to have a tender type for that. Every payment method should have its own tag tender type, right? If you’re taking in a check, don’t mark it as paid manual market as paid check.

If you’re, if you have a third party payment terminal or you take cash. You should have a tender type called cash. You shouldn’t just use manual, but that’s what it defaults to. And then it should go to cash. So they, so the person in the back office needs to understand, they often don’t have access to the front office.

What’s happening with these transactions. So when you’re doing draft orders. definitely helps to have those custom tenor type set

up. I’ve been speaking to a number of of members of our audience, and a lot of them are considering or moving or changing to wholesaling. Could you give a quick guide from an accounting perspective of how to account and bookkeep well for when you start to, to get these wholesale accounts, for book orders?

I understand actually from one of our accounting partners that there is some new functionality coming in Shopify for wholesale orders. I’m not personally very familiar with it yet, but when you’re doing wholesale orders. We’re not totally there. We’re still going to, if you’re using bookkeep with wholesale orders, we’re still going to book those and group it with the rest of your revenue.

Now we can segment it out into its own summary entry, but it’s not ideal. It depends if you’re handling the thing about wholesale orders is you’re going to send that order and you’re going to expect payment in 30 days or 60 days, hopefully 30 days. So that’s very different than how Shopify normally works.

So often it could be done with a draft order. And where they mark where it shows is and generally when it’s done with a draft order, it shows that it shows in Shopify as income on the day you create it or ship it and not, but even though it wasn’t paid, so you’re so we actually put that against a pending payments account, so you know how much is outstanding and then when the customer comes and pays, whether they pay by check and they mail it in and you go into Shopify.

You pull up that order and you mark it as paid check, then we’ll move that money. We’ll the next day, the entry, we’ll move it out of the pending payments into check payments. So we do handle that for you as long as you’re using Shopify as your accounts receivable tool instead of your accounting system.

Eventually we’re looking to expand to move some of those orders as full payments. Invoices into your accounting system. So you can manage it in your accounting system. But what happens is a lot of people just manage it all on Shopify. So our system still moves the information in a proper way. As long as you’re using Shopify as your accounts receivable.

Okay. Gotcha. Gotcha. Gotcha. Makes a lot of sense. Okay. Is there any other major just major points to, to note as an operator that lots of operators listening to this podcast and what essentially should they know now in 2024

particularly? I would I would just say it just, as things get more complicated with multiple sales channels and payment methods you’re always going to have options as well as I forget what it’s called, but there’s new ways that you can pay influencers or send product to influencers.

There’s just basically a lot of different siloed pieces of information that need to get into your books that if you’re not staying on top of it, you’re not going to fully understand. If you’re not realizing that you’re shipping a bunch of orders to influencers and you’re not booking those entries properly, which will keep will book using Shopify.

If it’s on Shopify, then your inventory will be off. And those are some of the things that you find out. That’s why that inventory count at the end of the month finds those issues. We’re down 1, 000 and what we expected in the cost of our inventory, are there a whole bunch of orders that we just didn’t book or, what we need to try to trace this back and see what happened often.

You might’ve received it wrong or otherwise. So it’s really that workflow that I talked about. I do. It’s just not being afraid of accounting these. The other thing I would say is that we get a lot of accountants that are like, my client says I have to do their inventory. And I’m like. Now inventory is a front of the house operation.

It is not for your bookkeeper to handle, later unless your bookkeeper’s on site, and can get involved in the day to day inventory is operational. It’s part of what you need to do and. It just is as a retailer no matter what it’s not something you can just say your accounting firm can do you need to stay on top of that Understand your income make sure all your platforms are connected and booking proper entries so that your books are accurate And just not be afraid of accounting.

It’s not really that hard to understand It’s definitely something to learn over time as a business owner. You’re only going to get smarter and your books are really your best KPIs in the end of the month. You got all kinds of tools that’ll tell you what’s happening on Shopify.

And yes, those are very front facing, leading indicators, but the end of month indicator is the important one, are my, am I making a profit? Am I making a profit? Maybe you’re doing amazing sales. And for some reason, people are stealing inventory on the back of the warehouse, but you never check your inventory until the end of the year.

So all this great work you’re doing, but my inventory has been disappearing. And so I made no profit. Like you have to do the whole round. And it’s really not that hard, but use proper, there’s so many software automation tools that help you do this. You have to think as an operator that you have to understand how they work.

You can’t just assume somebody is going to do it for you.

Yeah that, those are really important points. Because I unfortunately fall on that camp and the other camp of Not really getting on top of my accounting because I have a business partner who does, and that’s not good enough.

This conversation has given me a very well rounded, view, particularly when our accountants reach out to us with regards to the inventory counts. And I’m like, Oh my God, this guy’s he’s towing us again. But now as an, I understand exactly why it’s really accounting. Not just for compliance with the government and taxes, but for self optimization, moving forward, particularly the inventory, the numbers, knowing your numbers, know thyself from a single source of truth, point before I let you go, though Subscription commerce is becoming very widespread, particularly with with food and beverage and also skincare products.

What accounting practices or caveats should listeners be aware of when running subscriptions? Is it still business as usual, as you’ve explained, or are there any particular points to note?

Generally, if people are just paying monthly. It should come through in bookkeeps numbers. It, whenever the ship subscription was shipped or paid for, it should be hitting your books that day.

However, if they do pay upfront for the year, then that is different. So if they pay upfront, say they pay a thousand dollars for some subscription for the whole year, let’s make it 1, 200. You only, you’re going to have to book on day one. When they pay you that 1, 200, you’re going to book probably a hundred dollars for that month.

And then 1, 100 is going to have to go into another account. And the next month, when you ship out again, we’re going to take another a hundred dollars out of that account and put it into income. That’s accrual accounting and that’s how you handle, upfront payments. And generally a lot of those tools just charge a customer every month, so it’s probably fine.

But if they’re doing any annual reporting we don’t currently handle that. We haven’t actually seen that situation. I don’t think, but we will, as soon as we see it we’ll update our system to, to handle that for those annual upfront payments, but also working with a company like us. It is, we work with accountants and it’s very important that to understand that it’s a two way relationship accountants bring to us.

For instance, why, what are these, all these huge adjustments in our payout. We dug into it and found that these shop cash promotions from Shopify. So when Shopify brings you a customer using shop cash, 50 comes out. It depends, on what you read with them, how to, out of your adjustments and it just says adjustment.

So we didn’t, we’d never seen that before, but one of our clients brought it to us. So we quickly updated our code so that you can properly book that to a marketing account. Or cost a good sold or however you want to book it. And so we work hand in hand with you because these systems change all the time.

So it’s important to have, someone who is staying on top of it.

Yeah, that, that’s my point that’s my exact point I had in mind, which is. These systems change and you’d want a system that adapts fairly quickly to, to these rapid changes. You just mentioned the fact that Shopify is going to be providing a wholesale solution.

And that’s going to bring its own. Challenges and finance and its own, finance structure. So it’s really important to have you guys something like book KIP in there to make the lives of your bookkeepers and accountants, very smooth, clean data is what you need.

Patent piece of what’s for people who want to find out more about book

KIP,

we do have a first month free. trial, which you can pass on to, to whoever does your bookkeeping or accountants. So if you go to the bookkeep website, which is bookkeep. com, a link to it in the show notes, and you just mentioned 2x e com as how in the field, how did you hear about us?

They’ll give you 30 days. Jason it’s been an absolute pleasure, just learning. I learned a lot. I’ve come out of this conversation smarter from what I need to be doing from a bookkeeping accountant, standpoint. So I’m really grateful. Thank you for coming on, on, on the pod for people who want to find out more about what you guys are doing at bookkeep or who want to personally follow you because they like what they’re hearing.

What’s the best way to connect socially with yourselves.

Obviously you can come to bookkeep. com. You can join our email list where we have we, we send monthly updates with the special, essentially these accounting issues that happen from different e commerce platforms. So we try and keep you up to date on those through our email list, you can follow us on LinkedIn bookkeep or Jason Richelson on LinkedIn as well.

I also write articles about. This type of stuff for anyone who is interested in diving deeper into accrual accounting. But I’ve covered the basics here, but that’s the best way to find us.

Fantastic. Jason, it’s been an absolute pleasure, having you on the podcast and learning more about Bookkeep.

Thank you so much. Cheers.