Accounting for E-commerce Businesses

Section 1 — Chart of Accounts for an E-commerce OÜ

How to structure your accounting codes to produce meaningful reports — by channel, by cost type, by processor

Why a Dedicated E-commerce CoA Matters

A chart of accounts designed for a standard Estonian OÜ will have a single ‘Revenue’ account and a ‘Cost of Goods Sold’ account. For an e-commerce business, that structure makes it impossible to answer the most basic management questions: which channel is most profitable, what is my true gross margin after platform fees, how much of my COGS is shipping vs product cost?

The structure below creates the granularity needed for meaningful reporting without becoming so complex that the monthly close takes too long. Adapt it to your specific channels and cost profile — not every account will be relevant for every business.

Section 2 — Revenue Recognition: Gross Sales, Returns, and Marketplace Rules

When to recognise revenue, how to handle deferred revenue, and what changes when a marketplace is the deemed supplier

The Revenue Recognition Timing Rule

For e-commerce, revenue is recognised when control of the goods transfers to the customer — typically when the order is shipped for physical goods, or when the digital product is made available for download. Payment received in advance (before shipment) creates a deferred revenue liability. Payment received after delivery (credit terms for B2B) creates a trade receivable.

For most DTC (direct-to-consumer) online stores using Shopify or WooCommerce, revenue is recognised at the point of dispatch. Orders placed in December but not shipped until January are January revenue. This timing rule affects both the P&L and the VAT period — VAT is owed in the period of supply, not the period of payment.

Deferred Revenue — Pre-Paid Orders and Gift Cards

Any payment received before the corresponding goods are delivered or service performed creates a deferred revenue liability. For e-commerce, the two most common deferred revenue scenarios are pre-orders (customer pays now, product ships in 6 weeks) and gift cards (customer buys a gift card; revenue is recognised when the card is redeemed, not when it is sold).

Marketplace Deemed Supplier Rules — When the Marketplace Collects VAT

Under the EU’s 2021 VAT reform, online marketplaces (Amazon, Etsy, Zalando, ASOS Marketplace, etc.) are treated as ‘deemed suppliers’ for VAT purposes on certain transactions. This means the marketplace — not you — collects and remits the VAT on those sales. Your invoice to the marketplace is then zero-rated, and the marketplace issues its own VAT receipt to the consumer.

Section 3 — Inventory Valuation

FIFO vs weighted average — with fully worked examples showing how each method affects COGS and taxable profit

Why Inventory Valuation Method Matters

The inventory valuation method you choose directly determines your COGS figure each month — and therefore your gross profit and taxable income. In a period of rising supplier costs (inflation), FIFO produces a lower COGS (older, cheaper stock is sold first) and therefore higher gross profit. Weighted average smooths the effect. Neither method is more ‘correct’ — both are permitted under Estonian GAAP and IFRS — but once chosen, it must be applied consistently and disclosed in your accounting policies.

Inventory Write-Offs and Adjustments

Stock that is damaged, expired, lost, or obsolete must be written off — its cost removed from inventory and expensed. This reduces your inventory balance and increases COGS for the period. Write-offs are a legitimate and tax-deductible expense but require documentation: a written record of what was written off, why, when, and at what value.

Section 4 — Payment Processor Reconciliation

Stripe, Shopify Payments, PayPal, and Wise — a complete reconciliation framework for each

The Reconciliation Principle — Three Layers

Every payment processor sits between your customers and your bank account. Money passes through three layers: customer charges (gross), processor fees (deducted), and bank settlement (net). Your accounting must capture all three layers, with the gross charge as revenue and the fees as COGS — even though only the net settlement appears in your bank statement.

The most common e-commerce reconciliation error is using the bank statement as the primary source for revenue entry. The bank statement shows only net settlements — it hides the fee structure, the individual order breakdown, and any refunds already netted off before settlement. Always start from the processor’s transaction report, not the bank.

PayPal Reconciliation — Key Differences

PayPal complicates reconciliation because it holds balances in multiple currencies, applies fees differently to domestic and international transactions, and may hold funds for extended periods. The reconciliation approach is the same as Stripe but requires an additional FX conversion layer for non-EUR balances.

Wise Business — Multi-Currency Account Reconciliation

Wise is not a payment processor — it is a multi-currency receiving account. It does not charge per-transaction fees on incoming transfers, making it popular for international B2B invoice payments and supplier transactions. The reconciliation is straightforward but requires monthly FX revaluation for each non-EUR balance.

Section 5 — Multi-Currency Management

Recording transactions in foreign currencies, monthly revaluation, and managing FX risk

The Rule: Transaction Date Rate for Every Entry

Every foreign currency transaction must be recorded at the exchange rate on the date the transaction occurs — not an average monthly rate, not the month-end rate, not the rate you wished you had received. The transaction date rate is what creates an accurate EUR equivalent for each individual sale, purchase, or payment.

At month-end, all monetary items still denominated in foreign currency (bank balances, receivables, payables) must be restated at the month-end closing rate. The difference between the rate used when the item was first recorded and the month-end rate is an unrealised foreign exchange gain or loss — posted to P&L even though no cash conversion has occurred.

Realised vs Unrealised FX Gains and Losses

Section 6 — Returns, Refunds, and Credit Notes

The complete accounting treatment — revenue, inventory, VAT, and payment processor effects

Why Returns Are a Multi-Entry Event

A return is not a single transaction in accounting — it is a chain of four linked entries that must all happen in the correct period and reference the correct original transactions. Missing any one of the four creates a discrepancy that will surface in the bank reconciliation, the KMD return, or the inventory count.

Cross-Period Returns — When the Sale Was in a Prior Month

If a customer returns goods purchased in a prior month, the credit note is issued in the current month and all accounting entries (revenue reversal, VAT adjustment, inventory restoration) occur in the current month. You do not restate prior-month accounts. This is correct under both Estonian GAAP and IFRS — events in the current period are recorded in the current period.

The only exception is a material year-end adjustment: if a significant volume of December orders are returned in January, the year-end accounts should include an accrual for expected returns based on historical return rates. This ensures the December P&L is not overstated by sales that are subsequently reversed.

Section 7 — The E-commerce Monthly Close

Complete checklist from day 1 to day 5 after month-end

Why E-commerce Close Takes Longer Than a Service Business

A service OÜ closes the month with bank reconciliation, a few journal entries, and a VAT return. An e-commerce OÜ needs all of that plus: payment processor reconciliation (one per processor), inventory reconciliation, return processing, FX revaluation for every non-EUR balance, and a cross-check between the e-commerce platform’s revenue report and the accounting system totals. Done systematically, this takes 1–3 days. Done unsystematically, it takes a week and still leaves errors.