Breaking Down Marketplace and Payment Processor Deposits

When you sell through an online marketplace—like Amazon, Etsy, Shopify, or eBay—it’s easy to treat your accounting like a simplified version of reality. A deposit for $1,258.92 hits your bank account and you log it as “Sales” in your accounting software. Done and done, right?

Not quite.

That deposit is not just sales. It’s a mix of multiple components: gross income, payment processor fees, marketplace commissions, shipping costs, sales tax collected, customer tips, refunds, and more. Simply recording the net amount as your total sales will leave you with inaccurate books—and potentially unreported income.

In this article, we’ll walk through why it’s important to properly break down these deposits, what details to track, and how to record them accurately in your accounting software. No complex journal entries required—just clarity, accuracy, and a better handle on your business.

The Problem with Booking Deposits as Net Sales

It’s a common mistake: you see a deposit for $1,258.92 from your marketplace or payment processor and categorize it as “Sales” without a second thought. But what actually happened behind the scenes?

That deposit may have originated from $1,500 or more in customer payments. The difference? Marketplace fees, shipping label costs, payment processor deductions, discounts you offered, sales tax collected, and other adjustments that were subtracted before the deposit hit your bank.

When you record only the net amount as sales, you are understating your income. That might sound harmless—after all, you’re not inflating your revenue—but it introduces two major issues:

1. Tax Reporting Inaccuracy

Most marketplaces (like Amazon, Etsy, or Stripe) report your gross sales to the IRS on a Form 1099-K. If your books only show net deposits, they won’t match what’s reported to the government. That creates an unintentional underreporting of income, which can lead to IRS notices, audits, and tax penalties.

2. Loss of Insight into Profit Margins

Your gross sales don’t tell the whole story, and neither do your net deposits. To really understand your business’s profitability, you need visibility into what you earned and what you gave up to get there. That includes:

• Shipping costs you absorbed

• Marketplace and payment processor fees

• Sales tax collected and remitted on your behalf

• Discounts or coupons applied

• Customer tips

• Refunds or chargebacks

Without this information, you’re flying blind when it comes to calculating margins, comparing product performance, and making decisions about pricing, shipping policies, or marketing spend.

What’s Actually in That Deposit?

Let’s take a closer look at what a typical deposit might include. Say your payment processor sends you $1,258.92 for a batch of transactions. That deposit might have originated from $1,520 in total customer payments. Here’s how it could break down:

• Product Sales: $1,300

• Shipping Collected from Customer: $150

• Tips: $20

• Sales Tax Collected: $50

• Total Customer Payments (Gross): $1,520

Now subtract the fees and adjustments:

• Marketplace Fees: -$90

• Credit Card/Processor Fees: -$25

• Shipping Label Charges: -$110

• Refunds or Chargebacks: -$36.08

• Net Deposit: $1,258.92

If you only record that $1,258.92 as “Sales,” you’ve effectively left $261.08 unaccounted for—and most of it should either be recognized as expense or liability (like sales tax), not ignored.

How to Properly Enter Deposits

The good news? You don’t need to create complex journal entries to get this right. In most accounting software (like QuickBooks Online or Xero), you can enter this breakdown directly on the deposit screen.

Here’s how to do it:

1. Open the “Deposit” screen in your accounting software.

   
   

2. Enter each component line by line, matching the full gross amount of income and the deductions.

   • Product sales go to a “Sales” or “Product Income” account.

   • Shipping income goes to a “Shipping Income” or similar account.

   • Tips can go to a custom “Tips Received” income account.

   • Sales tax should be posted to a “Sales Tax Payable” liability account.

   • Fees, shipping label costs, and other deductions are recorded as negative amounts to the appropriate expense accounts.

     
     

3. Make sure the total deposit equals the amount received in your bank account.

The final total of the transaction should always equal the exact deposit amount you received. This approach gives you clean, accurate books and ensures all pieces of the transaction are accounted for properly.

What About Tools Like A2X, Webgility, or Synder?

There are third-party tools that can help automate the breakdown of deposits and push the data into your accounting software. These are especially helpful for businesses that deal with high volumes of transactions.

However, no automation tool is foolproof. Even when using integrations, you should still review each deposit to ensure it’s accurate. Fees may be miscategorized, discounts overlooked, or transactions improperly mapped. These tools save time, but they don't replace the need for proper oversight.

The Tax Angle: Avoiding Trouble Later

Underreporting income is one of the most common triggers for IRS inquiries. If your accounting records don’t match your 1099-K forms—especially if they show less income than what was reported by the marketplace or payment processor—you may find yourself on the receiving end of a tax notice.

Breaking down deposits accurately ensures:

• Your revenue aligns with 1099-K reporting

  
  

• All deductible fees and costs are captured as business expenses

  
  

• Sales tax liabilities are recorded properly and not accidentally counted as income

It’s not just about compliance—it’s also about not paying more than you have to.

Better Records, Better Business Decisions

Accurate deposit entries don’t just help you at tax time—they give you a better understanding of your business’s performance. With proper detail, you can:

• See which sales channels are most profitable

  
  

• Monitor trends in fees and shipping costs

  
  

• Understand how discounts affect your bottom line

  
  

• Get clearer profit margins per product or order type

This level of insight is essential if you’re trying to grow, optimize operations, or even seek funding. It’s hard to improve what you can’t measure.

Final Thoughts: Break It Down, Don’t Gloss It Over

Marketplace and processor deposits are more than just cash in the bank—they’re the result of complex transactions that include income, expenses, and liabilities. By properly breaking them down in your accounting software, you keep your books clean, your tax reporting accurate, and your insights sharp.

So next time a deposit hits your account, resist the urge to take the shortcut. Break it down. Enter the full picture. Your future self—and your accountant—will thank you

About the Author

I have been doing bookkeeping for about 20 years and concurrently held a position as the head of HR for a small management firm for 14 of those years.

Currently, I am an owner of Peggy’s Bookkeeping Service with my partner and mother, Peggy. Peggy’s Bookkeeping is a small, family-owned bookkeeping service based in Clearwater, FL. You can visit our website at www.peggysbookkeeping.com.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.