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How to Set Up Bookkeeping for Your Drop Shipping Business

As a drop shipper, you may be focused on the marketing and sales aspect of your business, but it's essential to have proper bookkeeping in place. Bookkeeping is the process of recording and tracking your financial transactions, and it's crucial for understanding your business's financial health, making informed decisions, and fulfilling your tax obligations. Here's how to set up bookkeeping for your drop shipping business.

1. Keep Track of Your Cost of Goods Sold (COGS)

Your COGS is the cost of the products you sell, including shipping costs and any other expenses associated with the product. Keeping track of your COGS is essential for understanding your profit margins and making informed decisions about pricing and product selection. Use accounting software to record your COGS for each sale.

2. Automate Your Bookkeeping as Much as Possible

Bookkeeping can be time-consuming, but there are tools available that can help automate the process. For example, accounting software can automatically import your bank transactions and categorize them for you. You can also set up rules in your accounting software to automatically categorize expenses based on keywords or other criteria.

3. Use Cloud-Based Accounting Software

Cloud-based accounting software, such as Xero or QuickBooks Online, allows you to access your financial information from anywhere with an internet connection. This is especially useful for dropshippers who may be working from different locations or travelling frequently. Cloud-based software also makes it easier to collaborate with a bookkeeper or accountant.

4. Keep Track of Your Sales Tax Obligations

As a dropshipper, you may be responsible for collecting and remitting sales tax in the states where you have nexus (a significant connection to the state, such as a physical presence). It's important to keep track of your sales in each state and determine whether you have nexus. Use accounting software to help you calculate and track your sales tax obligations.

5. Monitor Your Cash Flow

Cash flow is the amount of money coming in and going out of your business. As a dropshipper, you may have periods of high sales followed by periods of low sales. It's important to monitor your cash flow to ensure that you have enough cash on hand to pay your expenses and fulfill your orders. Use accounting software to create cash flow forecasts and monitor your actual cash flow.

6. Keep a Separate Record of Your PayPal Transactions

If you use PayPal to receive payments from customers, it's important to keep a separate record of these transactions. PayPal transactions can be difficult to reconcile with your bank account, so it's best to keep a separate record of them. Use accounting software to record your PayPal transactions separately and reconcile them with your PayPal account regularly.

7. Set Up Automatic Bank feeds

Many banks offer automatic bank feeds, which allow your bank transactions to be automatically imported into your accounting software. This can save you time and ensure that your records are up to date. Check with your bank to see if they offer automatic bank feeds, and set them up in your accounting software.


By following these tips, you can set up and maintain accurate bookkeeping for your dropshipping business. Remember, proper bookkeeping is essential for understanding your business's financial health and making informed decisions.

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