Record Shopify transactions

This article explains how to manage Shopify transactions in FreeAgent.

As the invoicing would already have been handled within your Shopify store, you likely wouldn’t need to create any sales invoices in FreeAgent. Therefore, you’d be able to record the income as it’s imported into your FreeAgent bank account by explaining it as ‘Sales’. Find out how to record income without creating invoices.

If you use PayPal to take payments from your customers, you can use the PayPal integration to automate the process of recording Shopify transactions in FreeAgent.

Alternatively, if you don’t use PayPal to take payments from your customers, you’ll likely have to account for the sales and fees manually by splitting the bank transactions.

You can create custom income and cost categories if you wish and accrue income by moving it backwards from one month to another, or defer income by moving it forward from one month to another, in FreeAgent.

Recording the income using the PayPal integration

If your customer used PayPal as the checkout method, you’ll first need to connect FreeAgent to PayPal to automate the process of populating this account with transactions coming into PayPal.

If your business has a personal PayPal account, you’ll need to upload bank statements instead.

Either way, we'd recommend that you tick the ‘Guess bank transactions’ checkbox when doing so as this will ensure that the PayPal fees are split out and explained automatically for you.

You'll then be able to record the sales income directly in the PayPal account without having to add sales invoices.

You can create custom income and cost categories if you wish.

Recording the income manually via the Shopify ‘payout’

If you don’t use PayPal to take payments from your customers the Shopify payout comes into your main bank account in your base currency (GBP if you’re in the UK), you would explain it directly to ‘Sales’, making sure to choose the appropriate rate of VAT. If you’re unsure which rate of VAT to select, please ask your accountant.

A receipt that includes sales made with different rates of VAT can either be split into multiple sales or you can choose ‘Amount’ from the VAT drop-down menu and enter the total value of VAT you charged on all of those sales. If any of your sales are outside the scope of UK VAT and you are on the VAT Flat Rate Scheme, you’ll need to split the receipt into multiple sales and show the value that’s outside the scope of UK VAT as a separate sale, in order to keep these out of your flat rate turnover.

If any fees have been deducted, you can split the transaction and explain the fee to ‘Bank / Finance Charges’.

If any refunds were applied, you would split the transaction and increase the amount paid into your business bank account. Then, explain the refunded amount as ‘Money Out’ > ‘Sales Refund’ with the appropriate VAT specified.

We’ll use an example of a Shopify payout of £530 for sales of £200 that had 5% VAT and sales of £330 that had 20% VAT. In the example, the payout will also have had £30 deducted as fees and will include refunds of £100 for sales that had 20% VAT. Here’s how you would record that in FreeAgent.

1. Split the transaction to record the fees deducted

As the fees will have been deducted before the transaction appears in FreeAgent, the transaction in FreeAgent will have a value of £500. You’ll therefore need to select ‘More options’ to split the bank transaction.

First, you’ll need to select ‘Sales’ from the ‘Type’ drop-down menu and increase the value of the transaction to the full amount of the payout, £530, using our example. Select ‘Create New Explanation’ at the bottom of the screen.

FreeAgent will then create a new Money out transaction for the difference, £30 using our example, which you can explain as a ‘Payment’ to ‘Bank/Finance Charges’ to record the fees deducted by Shopify.

2. Split the transaction to record sales with different rates of VAT

Next, select ‘More options’ on the original transaction explained as ‘Sales’ to split it between the sales with different VAT rates.

Enter the value of the first amount of sales you want to record and select the appropriate rate of VAT, £200 at 5% using our example. Select 'Save Changes’ at the bottom of the screen.

FreeAgent will then create a new Money in transaction for the difference, £330 using our example. Select ‘More options’ to split this transaction between the final amount of sales and the refunded amount.

If you don’t have any refunds, you can simply explain the final Money in transaction as ‘Sales’ with the appropriate rate of VAT, without splitting it.

Increase the value of the transaction to the amount of the final proportion of sales and the amount of the refunds, £430 using our example (sales of £330 and refunds of £100). Select the appropriate rate of VAT for the sales and select ‘Create New Explanation’ at the bottom of the screen.

3. Explain the refunded amount

FreeAgent will then create a new Money out transaction for the difference, £100 using our example.

Select ‘Sales Refund’ as the ‘Type’ and select the rate of VAT that was applied to the sale that is being refunded. If the refund relates to sales with different rates of VAT, you’ll need to split the transaction between each of the individual refunded sales.

If you have more than one Shopify store and receive payouts from Shopify in currencies that are different from your base currency, and these arrive into bank accounts in the same currency, you’ll need to explain these in the relevant bank accounts as they arrive.

If Shopify sends the payout in one currency but it arrives in a bank account with a different currency, for instance if they send you payment in Euros but this arrives in a GBP bank account, be aware that you may have to split the transaction and explain any difference to the category for Realised Gain / Loss on Foreign Exchange.