Bookkeeping tips for Etsy sellers and creative entrepreneurs
Selling on Etsy, Shopify, or at markets is a small business with a few wrinkles standard bookkeeping advice tends to skip over. Here's what actually matters when your products are handmade and your platform takes a cut of every sale.
Record gross sales, not net deposits
The biggest mistake I see: recording the amount Etsy deposits into your bank account as your revenue. That number is already net of fees, refunds, ad spend, and sometimes sales tax. Your books will understate revenue and hide every expense category Etsy is quietly handling for you.
Record the gross sales separately, then record platform fees, processing fees, refunds, and ad spend as their own line items. The bank deposit should reconcile to the net.
Sales tax is collected, not earned
For most U.S. Etsy sellers, Etsy collects and remits sales tax on your behalf in marketplace facilitator states — which is most of them. That tax was never yours. It shouldn't sit on your P&L as revenue or as an expense; it should pass through cleanly. If you sell on your own site too, that sales tax IS yours to collect and remit, and it lives in a liability account until you pay it.
Cost of goods sold for makers
If you make physical products, COGS is where your real margin lives. Materials, packaging, shipping supplies, the portion of studio rent or utilities tied to production. You don't need a manufacturing ERP — you do need a simple, consistent way to track what each product costs to make. Without it, you'll under-price and not know why you're tired.
Hobby vs business
The IRS distinguishes between a hobby and a business primarily by intent to make a profit. The practical signal is whether you're operating like a business: separate bank account, consistent records, pricing intended to cover costs plus margin, reinvesting in growth. If you're crossing into business territory, your bookkeeping needs to cross with you.
A short checklist
- Separate bank account and card used only for the business.
- Gross sales recorded from platform reports, not bank deposits.
- Platform fees, ad spend, and shipping each in their own expense account.
- Marketplace-collected sales tax kept off your P&L.
- A simple per-product cost sheet, updated when materials prices change.
- Monthly reconciliation — even slow months.
If you're growing past the spreadsheet phase and want this set up properly, get in touch and we'll talk through what your books should look like.