E-commerce Store Accounting: Handling payment gateways, shipping, and returns
E-commerce Accounting: Processing Payment Gateways, Shipping, and Returns
E-commerce accounting differs from traditional sales because a “Sale” doesn’t mean money hits the bank immediately. You have payment gateways with settlements and fees, and orders shipped via carriers with Cash on Delivery (COD), plus returns and refunds that might be partial or full. Therefore, what’s required is not just a single entry, but a “reconciliation” system between: The Platform + Payments + Shipping + Bank.
To see the big picture: Retail Accounting
- Understand the Order-to-Cash cycle in E-commerce and where variances occur.
- Create Clearing accounts for payment gateways and COD for accurate reconciliations.
- Handle Shipping, fees, and returns in a way that shows the true Channel Margin.
- Prepare control reports: settlement aging, return rates, and platform/gateway fees.
1) Data Sources in E-commerce Accounting
The first mistake in E-commerce accounting is relying on a single source (like sales reports from the platform alone). In reality, you have 4 sources that must be reconciled:
| Source | What does it provide? | Common Cause for Variances |
|---|---|---|
| Store Platform (Orders) | Orders, Prices, Discounts, Status (Processing/Shipped/Returned) | Order edits / cancellations / partial returns |
| Payment Gateways | Payments, Settlements, Fees, Rejected/Refunded | MDR fees + settlement delays + Chargebacks |
| Shipping Carriers | Shipping status, Shipping cost, COD collection, Returns | COD variances + extra fees + delivery failures |
| Bank/Treasury | Actual Inward (Net) and its dates | Bank deductions / delays / bulk payments |
2) The Order-to-Cash Cycle with Diagrams
In E-commerce, an order may pass through 6–10 statuses before turning into net cash. Therefore, we need a clear map to help you identify: Where is the revenue? Where is the collection? Where are the fees? And where is the inventory?
3) Payment Gateways: Settlements, Fees, and Chargebacks
The payment gateway usually aggregates many payments and then settles them in one bulk (Net) after deducting fees. Therefore, the best practice is to use an intermediary (Clearing) account for each gateway/channel.
3.1 “Clearing” Model for Payment Gateways
- Record e-payment sales daily on Gateway Clearing.
- When the settlement reaches the bank: Close the Clearing against the Bank + record the Fees (MDR/Fees).
- Monitor exceptions: Rejected transactions, Refunds, Chargebacks, and transactions under review.
| Description | Debit | Credit | Note |
|---|---|---|---|
| Bank | Net Settlement | – | Net Settlement |
| Payment Gateway Expense (MDR) | Fees | – | Fee/MDR |
| Gateway Clearing | – | Gross Payments | Gross Paid |
Complementary Point: Retail Store Accounting
4) Cash on Delivery (COD) with Carriers
COD is the point that generates the most variances if not managed as an “Intermediary Account,” because the carrier collects from/for you, deducts collection/return/storage fees, and may delay transfers.
4.1 COD Clearing Account Model
- When delivering the order to the carrier: Track “Out for delivery” status but don’t consider it collected.
- Upon delivery and collection: It is recorded in COD Clearing until it reaches the bank/cash.
- Upon transfer: COD Clearing is closed against the Bank + record carrier fees.
| Description | Debit | Credit | Note |
|---|---|---|---|
| Bank | Carrier Net Transfer | – | After deducting fees |
| COD Collection/Shipping Expense | Fees | – | COD Fees |
| COD Clearing | – | Gross Collections | Gross COD |
Another angle: Transportation Company Accounting
5) Shipping and Fulfillment: How to Display Costs?
Shipping costs in E-commerce accounting must be “transparent” because they affect pricing and advertising decisions. In practice, separate between:
Sector COA Library - Ready-to-Use Excel Files
- Company-born shipping: Sales/Distribution expense (Fulfillment/Delivery Expense).
- Customer-paid shipping: Shipping Income with a corresponding expense (per policy) to show net effect.
- Additional fees: COD Fee, return fee, weight/volume fee, storage fees, etc.
6) Returns and Refunds: Controls and Entries
Returns in E-commerce may be: Returns with restock, damaged returns, refunds without item receipt (special cases), or partial refunds. The requirement is to link each case to an Order ID and determine its impact on: Revenue + Collection + Inventory + Cost of Sales.
6.1 Simplified Refund Entry
| Description | Debit | Credit | Note |
|---|---|---|---|
| Sales Returns and Allowances / Refunds | XXX | – | Depending on policy (Contra Revenue or independent account) |
| Gateway Clearing / COD Clearing / Bank | – | XXX | Depending on refund method |
- Ready-made E-commerce Financial System — Account structuring + gateway reconciliations + net revenue reports.
- Inventory Return Model and impact on cost… — To classify returns and link them to orders, inventory, and COGS.
- Electronic Draft for Financial Statements — To aggregate results and close statements with analytical channel classifications.
7) Marketplaces: Commissions and Funded Discounts
Selling via a Marketplace adds a new layer: The platform may collect from the customer then transfer you the “Net” after deducting commission, service fees, shipping fees, and sometimes discounts funded by the platform or by you. Therefore, separate:
- Platform Revenue (Gross Sales) — Reference: Order reports within the platform.
- Platform Commissions & Fees — Channel expenses (Platform Fees).
- Platform Settlements — Independent Clearing for each platform.
- Funded Discounts — Distinguish who funds the discount to understand the net margin.
8) Brief Chart of Accounts (COA) for E-commerce
Good account structuring reduces manual adjustments and improves profitability analysis. This is a simplified model suitable for most stores:
| Group | Typical Accounts | Suggested Analytical Dimension |
|---|---|---|
| Revenues | Website Sales / App Sales / Marketplace Sales | Channel + Campaign |
| Collection (Clearing) | Gateway Clearing / COD Clearing / Platform Clearing | Provider |
| Fees | MDR / Gateway Fees / Platform Fees | Channel |
| Shipping & Fulfillment | Shipping Expense / Return Shipping / Packaging | Carrier + Channel |
| Returns | Refunds / Returns Write-off / Restocking (if any) | Reason Code |
| Inventory & COGS | Inventory / COGS / Inventory Adjustments | Category |
9) Management Reports and KPIs
Because variances in E-commerce accounting often come from settlements and returns, focus on reports that show deviations early:
- Settlement Aging: Settlement ages for each gateway/platform/carrier.
- Refund & Return Rate: Refund and return rates by product/channel.
- Fees as % of Sales: Collection/Platform fees as a percentage of sales.
- Shipping Cost per Order: Shipping cost per order compared to the average.
- Net Revenue Bridge: A bridge explaining the transition from Gross Sales to Net Cash.
Complementary Point: Retail KPIs
10) Internal Controls and Common Mistakes
10.1 Daily/Weekly E-commerce Checklist
- Daily: Upload platform sales + update payment/shipping statuses + link Order ID.
- Daily/Weekly: Reconcile Gateway Clearing and COD Clearing (at least Aging).
- Weekly: Exception report: Refunds/Chargebacks/Failed Deliveries.
- Monthly: Analyze fees, shipping, and returns as a percentage of sales by channel.
- Proving sales from the bank only (you lose visibility of fees and returns).
- Not using Clearing accounts (settlements get mixed up and delays can’t be tracked).
- Mixing customer shipping with company shipping in one number (you don’t know the channel margin).
- Refunds without Order ID reference (hard to link to sales and product).
- Merging Marketplace with Website without separating fees and Clearing (channel cost is lost).
11) Frequently Asked Questions
What is meant by E-commerce Accounting?
It is an accounting system that links the store platform with payment gateways and carriers, focusing on settlements, fees, and COD to reach accurate net profitability for each channel.
How do I reconcile payment gateways correctly?
By using a Clearing account for each gateway: record payments on Clearing, then when the settlement hits the bank, close Clearing against the Bank while recording fees and exceptions (Refunds/Chargebacks).
How are COD orders treated?
Via COD Clearing or a collection account with the carrier until physical collection and transfer, then the value is reconciled with the bank, recording collection fees and any variances.
Is shipping part of Cost of Sales?
Depending on policy; however, for better analysis, it is preferred to display it as a separate channel/fulfillment item, separating company-born shipping from customer-paid shipping.
What is the most dangerous control point in E-commerce?
Settlements and returns because they change the net that hits the bank. Solution: Settlement Aging + linking every movement to an Order ID reference.
12) Conclusion
The success of E-commerce accounting relies on continuous “reconciliation” between the platform, payment gateways, carriers, and the bank, with clear Clearing accounts for payments, COD, and platforms, and separating fees, shipping, and returns to show net revenue and true margin for each channel. When these layers are built, reports become accurate, and variances appear early before turning into silent losses.