You can find most of what is wrong with ecommerce books in about four hours, without an accountant and without special software. Seven checks, run in order, will surface the errors that change your numbers: revenue recorded net instead of gross, sales tax sitting in income, landed cost that stopped being updated two years ago, and inventory on the balance sheet that does not exist in a warehouse. What follows is the sequence, with time estimates and a worked example.

Pull three things before you start: last year’s profit and loss, last year’s balance sheet, and every Form 1099-K your marketplaces issued. Marketplaces send those by January 31.

Check 1: Does gross revenue tie to the 1099-K? (30 minutes)

Add up the gross amounts across every 1099-K you received. Compare that to gross product sales on your P&L for the same period.

If your P&L number is far lower, you are recording deposits as revenue. That is the single most common error in ecommerce bookkeeping, and it understates both revenue and expenses by the full amount of marketplace fees.

Some variance is normal. Fees, refunds, and a December-to-January timing difference all create legitimate gaps. A 3 percent gap is a timing question. A 25 percent gap is a structural one.

The threshold matters for what you should expect to receive. The IRS requires third party settlement organizations to issue Form 1099-K when payments for goods or services exceed $20,000 in more than 200 transactions, and platforms may issue one below that. The IRS guidance on the form is explicit that you must report income whether or not you receive one, and that selling on multiple platforms can produce multiple forms.

Check 2: Is sales tax in the right place? (20 minutes)

Open your chart of accounts and search for “sales tax.” You want to find it under current liabilities. If it appears in income, or does not appear at all, stop and fix that before doing anything else.

Marketplace-collected tax needs separate treatment, because in most states you never handle the money. The California Department of Tax and Fee Administration’s guide to the Marketplace Facilitator Act notes that since October 1, 2019, the facilitator is generally responsible for collecting, reporting, and paying tax on sales it facilitates for delivery to California customers, and that registered marketplace sellers still report total sales on their returns and then deduct the facilitated portion as “other.”

Two accounts, one for tax you collect and remit and one for tax the marketplace handles, is the structure that makes a return preparable.

Check 3: Spot-check three landed costs (45 minutes)

Pick your best seller, a mid-volume item, and something you last reordered more than a year ago. For each, find the cost your system is using and compare it to the last supplier invoice plus freight, duty, and prep.

This check finds more money than any other on the list. Landed costs go stale quietly. Freight rates move, tariffs change, a supplier raises prices by 8 percent and nobody updates the item record. Every unit sold since then carried the wrong cost, and your gross margin has been wrong for as long as that has been true.

If the three you checked are all current, the system is probably fine. If one is stale, assume they all are and schedule a full pass.

Check 4: Does inventory on the balance sheet exist? (60 minutes)

Take your ending inventory value and divide it by your blended average unit cost to get an implied unit count. Compare that to what your warehouse and fulfillment reports say you hold.

You do not need a full physical count for this. You need to know whether the number is roughly right or off by an order of magnitude. A 5 percent gap is shrinkage and timing. A 40 percent gap means something structural, usually purchases being expensed on payment rather than capitalized, or returns being restocked in the ledger that were written off in the warehouse.

The compliance stakes here are real. IRS Publication 538 states that an inventory is necessary to clearly show income when the purchase or sale of merchandise is an income-producing factor, and that a business required to account for inventory must use an accrual method for purchases and sales. A small business taxpayer exception applies to filers averaging $26 million or less in annual gross receipts over the three prior tax years who are not tax shelters, though they must still use a method that clearly reflects income.

Check 5: Where did the reserve go? (15 minutes)

Search your balance sheet for a marketplace receivable or unsettled funds account. If there is none, money earned but not yet disbursed is invisible in your books.

This matters most in Q4, when platforms hold larger reserves against expected returns. A seller with $40,000 held in reserve on December 31 who has no account for it is understating assets by $40,000 and will see it appear as unexplained January revenue.

Check 6: Is “marketplace fees” one account? (20 minutes)

Look at your expense accounts. If referral fees, fulfillment fees, storage, and returns processing all land in one bucket, you can see that fees rose and not why.

Split them. Seven accounts instead of one turns “fees went up $8,300” into “storage fees went up $8,300,” which is an operational problem with an operational fix. Tools built for this decomposition, including A2X, Webgility, and ConnectBooks, exist because the settlement report contains the detail and the bank deposit does not.

Check 7: Are returns in contra-revenue? (15 minutes)

Returns belong as a reduction of revenue, not as an expense. Put them in expenses and net sales stops being a real line, which means your return rate is invisible without a calculation nobody performs.

That rate deserves visibility. The National Retail Federation and Happy Returns, in the returns report they released in October 2025, estimated that 19.3 percent of online sales would be returned in 2025, against 15.8 percent across retail overall. The same report put return fraud at 9 percent of all returns.

The worked example

A seller pulls three 1099-Ks totaling $2,940,000 gross. Their P&L shows $2,190,000 in sales. That is a 25.5 percent gap, far past a timing difference, so deposits are being booked as revenue.

They check landed cost on three SKUs. Two are current. The third, a bestseller last reordered fourteen months ago, is carrying $6.40 when the last invoice plus freight came to $8.15. At 9,200 units sold in the year, COGS is understated by $16,100 and gross profit is overstated by the same amount.

Ending inventory reads $412,000. Blended unit cost is $9.80, implying about 42,000 units. Warehouse and fulfillment reports total 31,400. The 10,600-unit gap at $9.80 is $103,880 of inventory on the balance sheet that is not in a building.

Three checks, under two hours, and roughly $120,000 of misstatement located. None of it required an accountant. Fixing it will.

What to do with the findings

Write down each gap with the number attached, then decide what needs restating and what needs fixing going forward. Prior-year restatements affect a filed return and are a conversation with your CPA, not a change you make yourself.

Keep the workpaper. The IRS recordkeeping guidance describes the responsibility to substantiate entries, deductions, and statements on your returns as the burden of proof, and notes that you must keep records as long as needed to prove income or deductions. It also says you may choose any recordkeeping system suited to your business that clearly shows income and expenses, and that except in a few cases the law does not require any particular kind of record. A dated afternoon’s work showing what you found and what you changed is exactly the kind of record that helps later.

Run the same seven checks quarterly. After the first pass, it takes about an hour.