Retail store bookkeeping services

Inventory is the asset that decides the profit

Accounting for a retail business comes down to inventory. Stock is cash turned into goods on a shelf, and until it sells it is an asset, not an expense. When it sells, its cost moves to cost of goods sold. A store that expenses every vendor invoice the day it pays it gets a profit and loss that follows the purchasing calendar: the month the holiday stock arrives looks like a loss, and December looks like a record.

The mechanics, perpetual and periodic, and the entries for each, are in the journal entry for inventory. That post also covers the §471(c) small business exception, which lets businesses under the gross receipts test use simpler tax methods but does not let a store deduct stock it has not sold. This page covers the parts of running a store’s books that sit around that entry.

One daily summary, not every sale

A store with a few hundred transactions a day cannot have each sale in QuickBooks Online as its own entry; the bank deposits are batches, and nothing would match. The POS (Shopify POS, Square, Lightspeed, Clover and others) should post one summary per day, or the bookkeeper should enter one from the end-of-day report, split into the parts the books need:

Date	Account	Debit	Credit
Oct 11	Card Clearing	3,860.00
Oct 11	Cash Drawer Clearing	420.00
Oct 11	Sales Returns & Allowances	180.00
Oct 11	Sales Discounts	95.00
Oct 11	Merchandise Sales		4,275.00
Oct 11	Sales Tax Payable		280.00

Debits here total $4,555 and credits $4,555: gross sales of $4,275 less $180 of returns and $95 of discounts is $4,000 of net sales, plus $280 of tax collected is the $4,280 that came in by card and cash. Keeping returns and discounts in their own accounts, rather than netting them into sales, shows how much the store gives back to sell what it sells.

The card processor deposits the $3,860 a day or two later, net of fees. Record the fee as an expense, as in our fix for credit card processing fees, and Card Clearing comes back to zero. A clearing balance that grows means some deposits were never matched.

Gift cards sold are a liability, not sales, until redeemed. A store with a busy December should see the gift card liability rise in December and fall through January.

Sales tax by jurisdiction

A store that sells in one location collects one combined rate, usually set in the POS. The work is in what the POS is told is taxable (clothing, food and some other categories are exempt or taxed differently in many states) and in agreeing the books with the return. Each month, Sales Tax Payable in QuickBooks should equal the tax collected per the POS for the period, less what was paid with the last return. If the two disagree, the return is usually right and the POS sync is mapping something wrong.

Online sales add a second layer. Sales through a marketplace such as Amazon or Etsy are generally taxed and remitted by the marketplace under state marketplace facilitator laws, so those sales should not be in the store’s own sales tax liability. Sales through the store’s own website can create obligations in other states once the store passes that state’s economic nexus threshold. Both are questions to settle with a sales tax adviser before they become a notice.

Counting stock and recording shrink

The books say what inventory should be on hand; a count says what is. The difference is shrink: theft, damage, miscounts at receiving and items sold without being scanned. Count at least once a year, at year end, and more often for high-value or fast-moving categories. Then adjust the books to the count. Say the books show $86,000 of inventory and the year-end count, at cost, comes to $81,500:

Date	Account	Debit	Credit
Dec 31	Inventory Shrinkage	4,500.00
Dec 31	Merchandise Inventory		4,500.00

Shrinkage is part of cost of goods sold. Kept in its own account, it can be watched year over year; buried in purchases, it looks like the store’s margins slipped.

What should COGS be for a retail store?

Cost of goods sold as a share of sales follows from the markup. A store that prices at keystone, double the cost, has cost of goods of 50% of sales before shrink and markdowns; a 60% markup on cost gives 62.5%. Published averages vary widely by category, so the useful comparison is the store’s own cost of goods by category, month over month, which the daily summaries and the count adjustment above produce.

What is the retail method of inventory costing?

It is a way of valuing inventory without costing every item. The store tracks inventory at retail prices, works out the ratio of cost to retail for the period, and applies that ratio to the retail value of what is left. If goods available for sale cost $60,000 and were priced at $100,000, the ratio is 60%, and $30,000 of stock at retail is valued at $18,000 of cost. It suits stores with many low-cost items and steady markups; markdowns and promotions make it less accurate, and for tax it has its own rules (Treas. Reg. §1.471-8). Most small stores whose POS tracks item cost do not need it.

Consignment is not inventory

Many boutiques, resale shops and gift stores sell goods on consignment: the maker or owner keeps title until the item sells, and the store keeps a commission. Those goods are not the store’s inventory and should not be in its count or on its balance sheet. When a consigned item sells, the full price is collected, the store keeps its share as Consignment Commission Income, and the rest is owed to the consignor until paid, usually monthly from a consignment report. Say a $200 item on a 40% commission sells:

Date	Account	Debit	Credit
Oct 18	Card Clearing	200.00
Oct 18	Consignment Commission Income		80.00
Oct 18	Due to Consignors		120.00

The Due to Consignors balance should match the POS consignment report at month end. Sales tax on consigned goods is usually collected by the store; check the state’s rule.

What accounting software do retail stores use?

Retail stores run a point of sale system for the register, stock levels and sales tax, and an accounting system such as QuickBooks Online for the bank, payables, payroll and the financial statements. The POS is the inventory record; QuickBooks holds its value. The connection works when it posts a daily summary as above, posts cost of goods sold either daily from the POS or monthly from a stock valuation report, and does not also create inventory items in QuickBooks that the POS already tracks. Running inventory quantities in both systems is how stores end up with two different counts and no idea which to trust. A store that also sells on Shopify, Amazon or Etsy adds a clearing account per channel, covered in ecommerce bookkeeping.

How much does retail bookkeeping cost?

Fixing a retail file usually means replacing a year of per-sale sync entries with daily summaries, moving purchases to inventory with an opening count, splitting out consignment and gift cards, and tying sales tax to the returns filed. That is a cleanup engagement, scoped to the number of months affected.

$99per month of backlog20% off 6+ months

Once the file is clean, a monthly close posts the POS summaries, ties sales tax and card clearing, and adjusts inventory to the stock report, closed by the 5th business day. That is $99 a month (up to 3 accounts, up to 200 transactions a month), and $199 past either limit or with reporting by location. Store owners can read how an engagement starts on the outsourced bookkeeping page. Other trades are on the industries page, and full pricing is on the pricing page.

Or send your file for a free review, with a written answer within 48 hours.