E-commerce merchants on Shopify understand the importance of tracking the cost of goods sold (COGS) to maintain a healthy bottom line. By integrating your Shopify store with Xero, you can easily and accurately track COGS, helping you make informed financial decisions for your business.
In this guide, we will explore how to track COGS in Xero for your Shopify store and the benefits of seamless integration for e-commerce accounting.
What is COGS and Why is it Important for E-commerce Merchants?
The cost of goods sold (COGS) represents the direct costs associated with producing and selling your products. These costs include raw materials, labor, and other expenses directly related to the manufacturing process.
Tracking COGS is essential for e-commerce merchants as it helps determine gross profit margins, enables accurate tax reporting, and provides insight into business performance.
Benefits of Integrating Shopify and Xero for COGS Tracking
- Automation: Integrating Shopify and Xero automates the process of updating COGS in your accounting software, reducing the risk of manual errors and saving time on data entry.
- Real-time updates: Sync your inventory and financial data in real-time, ensuring that your COGS and other financial metrics are always up to date.
- Streamlined financial management: Seamless integration between Shopify and Xero simplifies e-commerce accounting, allowing you to focus on growing your business.
- Accurate tax reporting: Properly tracking COGS ensures accurate tax reporting and helps you avoid potential penalties and fines.
How to Track COGS in Xero for Your Shopify Store
- Integrate Shopify and Xero: Begin by integrating your Shopify store with Xero using a third-party app like Post to Xero, or a custom-built solution. This will allow data to flow seamlessly between the two platforms, making it easier to track COGS and other financial metrics.
- Set up inventory items: In Xero, create an inventory item for each product in your Shopify store. Assign a purchase price and cost of goods sold account for each item to track COGS accurately.
- Map products in Shopify to inventory items in Xero: Ensure that each product in your Shopify store is mapped to the corresponding inventory item in Xero. This will allow the platforms to sync data accurately and maintain up-to-date COGS information. With an integration app, you usually just need to ensure the SKU matches on both Shopify and Xero.
- Configure automatic updates: Set up automatic updates between Shopify and Xero to sync inventory and financial data in real-time. This will ensure your COGS and other financial metrics are always current and accurate.
- Monitor and analyse COGS: Regularly review and analyse your COGS in Xero to make informed business decisions, identify trends, and optimise pricing and inventory management.
Tracking COGS in Xero for your Shopify store is a vital aspect of e-commerce financial management. By integrating the two platforms, you can automate the process, ensuring accurate and up-to-date financial data.
Use this comprehensive guide to set up COGS tracking in Xero and unlock the full potential of seamless e-commerce accounting for your business.