Why does my profit not match my bank balance?

Usually inventory. Money spent on stock leaves the bank but sits on the balance sheet as an asset until the goods sell, so a growing business buying more inventory each month will consistently show more profit than cash. That is correct accounting, not an error.

Can I deduct inventory when I buy it?

Generally no. Inventory is capitalised and deducted through cost of goods sold as it sells. There are small-business exceptions in the US rules, so confirm your specific position, but the default is that buying stock is not an immediate deduction.

How do I handle platform fees?

Record gross revenue and each deduction separately — platform fees, payment processing, refunds and chargebacks. Booking only the net payout understates both revenue and expenses, and leaves your books unable to reconcile to the Form 1099-K the platform files.

Bookkeeping and accounting for founders

Guide · 2 min read

E-commerce accounting: COGS, inventory and landed cost

The supplier invoice is not what the product cost you. Getting this wrong makes losing products look like winners.

The short answer

E-commerce cost of goods sold must include landed cost — the supplier price plus freight, duties, insurance and inbound fulfilment fees — not just the supplier invoice. Inventory is recorded as an asset and only becomes an expense when the item sells, so buying stock is not a deduction in the month you buy it.

Landed cost, not invoice cost

The single most common e-commerce accounting error is pricing from the supplier invoice. The real cost of getting a unit onto a shelf includes several things that arrive on separate invoices, sometimes months apart.

Product cost from the supplier.
Freight to the destination.
Customs duties and any brokerage fees.
Insurance on the shipment.
Inbound fulfilment fees to get stock into the warehouse.

Inventory is an asset

Buying $40,000 of stock is not a $40,000 expense in that month. It converts cash into an asset. The expense arrives as cost of goods sold when each unit sells, which is why profit and cash diverge so sharply in a growing e-commerce business.

Record gross, then deduct

Marketplaces and processors deposit net. Your books need gross revenue and separate lines for platform fees, processing, refunds and chargebacks — otherwise you cannot reconcile to the 1099-K, and you lose visibility of costs that are often larger than your accounting fees.

For the sales tax side of e-commerce, see sales tax nexus.

Frequently asked questions

Why does my profit not match my bank balance?: Usually inventory. Money spent on stock leaves the bank but sits on the balance sheet as an asset until the goods sell, so a growing business buying more inventory each month will consistently show more profit than cash. That is correct accounting, not an error.
Can I deduct inventory when I buy it?: Generally no. Inventory is capitalised and deducted through cost of goods sold as it sells. There are small-business exceptions in the US rules, so confirm your specific position, but the default is that buying stock is not an immediate deduction.
How do I handle platform fees?: Record gross revenue and each deduction separately — platform fees, payment processing, refunds and chargebacks. Booking only the net payout understates both revenue and expenses, and leaves your books unable to reconcile to the Form 1099-K the platform files.

Sources

Last reviewed August 23, 2026. Verify against the primary source before acting.

Founders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.

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