If you sell physical products (Shopee, Shopify, Lazada, or direct), your accounting is more complex than freelancers because you need to track:
- Inventory (what you sell)
- Cost of Goods Sold (your actual product cost)
- Sales and platform fees
- Taxes and returns
👉 This guide helps you only use what matters, without overcomplicating your setup.
✅ Step 1: Set Up Your Income Accounts
Sales (or Design Income — rename it)
This is your main revenue account.
Why you need it:
- Tracks all product sales
- Used in Profit & Loss reports
- Shows business performance
👉 Best practice: Rename “Design Income” → Sales
Sales Return
For refunded or returned orders.
Why you need it:
- Keeps your sales reports accurate
- Separates real revenue vs refunded revenue
👉 Without this, your income will look higher than it actually is.
Other Income (Optional)
Examples:
- Affiliate income
- Cashback rewards
- Non-product earnings
Why it’s optional:
- Keeps product sales clean and focused
✅ Step 2: Set Up Your Asset Accounts
These track what you own and expect to receive.
Inventory
Your raw or unsold products.
Why you need it:
- Tracks how much stock you have
- Helps calculate profit correctly
👉 Very important for product businesses.
Finished Goods Inventory
Products ready to sell.
Why you need it:
- Separates completed products from raw items
- Useful if you manufacture or assemble goods
Not always needed if:
- You only buy and resell finished items
Accounts Receivable
Money customers still owe you.
Why you need it:
- Useful for wholesale or bulk orders
- Tracks unpaid invoices
Not always needed if:
- You only sell via Shopee/Lazada (instant payments)
Bank / Cash
Your actual money.
Why you need it:
- Tracks real cash flow
- Matches payouts from platforms
Undeposited Funds
Temporary holding account.
Why you need it:
- Helps match platform payouts (e.g., Shopify, Stripe)
- Avoids confusion when payments are grouped
✅ Step 3: Set Up Your Cost of Goods Sold (COGS)
This is where many users get confused — but it’s critical.
Purchases
Cost of buying products.
Why you need it:
- Tracks how much you spend on inventory
- Helps calculate profit
Cost of Goods Sold (Contractor Expenses)
Actual cost of items sold.
Why you need it:
- Matches cost with sales
- Gives accurate profit
👉 Without COGS, your profit will look too high.
Freight In and Delivery Expenses
Shipping cost to bring products in.
Why you need it:
- Part of your product cost
- Should be included in COGS
✅ Step 4: Set Up Your Liability Accounts
Accounts Payable
Money you owe suppliers.
Why you need it:
- Tracks unpaid inventory purchases
Sales Tax
Taxes collected from customers.
Why you need it:
- Separates tax from income
- Prevents overstating revenue
Unearned Revenue
Payments received before delivery.
Example:
- Pre-orders
Why you need it:
- Prevents recognizing income too early
Accrued Purchases (Optional)
Why you need it:
- For inventory received but not yet billed
Not needed if:
- You only record purchases when paid
✅ Step 5: Set Up Your Expense Accounts
Freight Out Expenses
Shipping to customers.
Why you need it:
- Tracks delivery costs
- Important for profit analysis
Sales & Marketing Expenses
Examples:
- Facebook Ads
- TikTok Ads
Why you need it:
- Measures how much you spend to get customers
Stripe Fee / Platform Fees
Why you need it:
- Tracks transaction fees
- Shows real net income
Utilities / Office / Rent (Optional)
Why you need it:
- If you operate a warehouse or office
❌ Accounts You Usually DON’T Need (And Why)
Manufacturing Overhead (Usually)
Why not applicable:
- Only for factories
- Not needed for simple buy-and-sell businesses
Leasehold Improvements
Why not applicable:
- Only if you invest in store renovations
Complex FX Accounts
Why not applicable:
- Only needed if dealing with multiple currencies regularly
Advanced Accrual Accounts
(e.g., Accrued Purchase Return)
Why not applicable:
- Too complex for most small sellers
- Can confuse reporting
⚙️ Optional Advanced (Use Only If Needed)
- Inventory Adjustment → for stock corrections
- Purchase Return → returned items to suppliers
- Gain/Loss on Foreign Exchange → international sourcing
- Bank Loans → if financing inventory
🚀 Simple Setup Summary
If you want a clean and practical setup, start with:
Income
- Sales
- Sales Return
Assets
- Inventory
- Bank
COGS
- Purchases
- Cost of Goods Sold
Liabilities
- Accounts Payable
- Sales Tax
Expenses
- Freight Out
- Marketing
- Platform Fees
✨ Final Tip
For e-commerce:
Profit ≠ Sales — Profit = Sales – Cost of Goods Sold – Expenses
If you skip Inventory or COGS, your numbers will be misleading.