Bookkeeping for E-Commerce Businesses in Montana

A traditional service business may send one invoice and receive one matching payment. E-commerce deposits rarely work that way. A payment processor may combine dozens or hundreds of orders into one payout, subtract fees and refunds, hold reserves, and deposit the remaining amount several days later. The bank deposit is therefore not the same as gross revenue.

Online sellers also tend to use multiple systems. Your store records orders, a payment processor handles funds, a marketplace collects its own fees, and accounting software imports the eventual bank deposit. If these systems are not reconciled, sales may be omitted, duplicated, or recorded after fees rather than at their full amount.

The problem grows when a business adds inventory, gift cards, returns, international transactions, or a second marketplace. Good bookkeeping creates a clear path from each sales channel to the accounting records and then to the bank. That path should be repeatable every month, not rebuilt during tax season.

Suppose a platform reports customer payments and then subtracts refunds, processing fees, advertising charges, or marketplace commissions before sending a deposit. Recording only the deposit as revenue understates both sales and expenses. It can also make your accounting records difficult to reconcile with platform reports and information forms.

A cleaner method uses a separate clearing account for each major platform or processor. Gross sales, customer shipping charges, discounts, refunds, taxes collected, and platform fees are posted to the appropriate accounts. The actual payout reduces the clearing account when it reaches the bank. After timing differences are considered, the clearing balance should tie back to funds the platform still owes the business.

Annual payment reports, including any Form 1099-K you receive, are useful reconciliation tools but are not substitutes for bookkeeping. Reporting thresholds and platform practices can change, and the amount on a form may include transactions that require adjustments. It also does not automatically represent taxable profit. Compare annual forms with your sales records and confirm current reporting rules for your situation.

Inventory purchases are not always an immediate expense. Products held for sale generally remain an asset until they are sold, subject to the accounting and tax methods applicable to the business. A common cost of goods sold calculation starts with beginning inventory, adds eligible product costs, and subtracts ending inventory. The result represents the cost associated with goods sold during the period.

Your inventory cost may include more than the supplier’s invoice price. Depending on the business and its accounting method, freight to bring products in, customs charges, packaging, production labor, or other direct costs may need to be treated consistently. Outbound shipping to customers, fulfillment fees, storage costs, and advertising should also be assigned to appropriate accounts so management can see what each sale actually costs.

Inventory counts still matter even when software tracks units continuously. Damaged products, samples, theft, supplier errors, bundles, and fulfillment mistakes can make system quantities inaccurate. Conduct physical counts on a schedule appropriate for the volume of the business, investigate significant differences, and retain documentation for write-offs. Before changing an inventory or tax accounting method, discuss the change with a qualified tax professional.

Montana does not impose a general statewide sales tax, which simplifies in-state sales for many Montana-based sellers. It does not mean an online business can ignore sales tax everywhere. Selling to customers in other states may create economic nexus based on sales volume, transaction activity, physical presence, inventory location, employees, or other connections.

Many marketplaces collect and remit tax on marketplace transactions under facilitator laws. That protection generally applies only to sales handled through that marketplace and only as provided by the relevant state’s rules. Direct website sales, wholesale activity, trade shows, stored inventory, or fulfillment arrangements may create separate registration and filing responsibilities.

Review sales by destination state rather than looking only at total revenue. Pay particular attention to states where sales are growing, where employees or contractors perform work, or where marketplace inventory is stored. Thresholds, product taxability, filing frequencies, and registration rules vary and change over time. Confirm current requirements before registering, collecting tax, or assuming a marketplace has handled every obligation.

Merchant processing fees, marketplace commissions, listing fees, fulfillment charges, software subscriptions, and advertising costs should not all disappear into one broad expense account. Reasonable detail helps identify which channel is profitable. An Amazon sale with fulfillment and advertising costs may produce a different margin from the same product sold through your own website.

Refunds and discounts also deserve separate treatment. Returns are generally recorded as reductions of revenue, while related inventory should be restored only if the product can actually be resold. Chargebacks may involve returned revenue, processor charges, and an unpaid receivable. Gift card sales usually require special treatment because receiving cash does not necessarily mean revenue has been earned yet.

Choose a consistent policy for customer shipping income and shipping expenses. If customers pay shipping, record the amount collected separately from product revenue when useful for analysis. Track outbound postage, carrier charges, packaging, and fulfillment costs in accounts that make gross margin reporting meaningful. Consistency is more valuable than creating so many categories that nobody can maintain them.

At month-end, reconcile every bank account, credit card, processor, marketplace, and clearing account. Compare accounting revenue with channel reports, review refunds and chargebacks, confirm sales tax liabilities, and investigate old clearing balances. Reconcile inventory records to the general ledger and review gross margin by product or channel for unexpected changes.

Keep digital copies of platform statements, processor reports, major vendor invoices, inventory count records, loan documents, and sales tax filings. Do not rely on permanent access to a marketplace dashboard. Platforms can change report formats, limit historical downloads, or close accounts. A monthly archive gives your bookkeeper and tax preparer a stable record of what occurred.

Before year-end tax preparation, review owner payments, payroll, contractor payments, equipment purchases, estimated tax payments, inventory, and any new states where the business operated. Hiring a remote employee can create payroll registration and filing obligations outside Montana. Entity choice and tax elections can also affect how the owner is paid, but those decisions should be based on the complete financial picture rather than revenue alone.

If your store has outgrown basic bank-feed bookkeeping, professional help can be less expensive than cleaning up a full year of net deposits. Marlow Accounting provides bookkeeping for Montana small businesses starting at $300 per month. The appropriate scope depends on sales channels, transaction volume, inventory complexity, payroll, and multistate activity.

This article provides general information and is not tax, legal, or accounting advice for your specific situation. E-commerce businesses can have different obligations based on their products, sales channels, entity structure, inventory locations, employees, and customer destinations.

For help setting up or cleaning up your e-commerce bookkeeping, call Marlow Accounting at (406) 290-1214 or schedule a free consultation. Cory Marlow is an IRS Enrolled Agent federally licensed by the U.S. Treasury and can help you evaluate your business records and tax needs.