eCommerce Bookkeeping Mistakes That Trigger ATO Audits

Running an eCommerce business is fast-paced, but bookkeeping can’t be an afterthought.

The Australian Taxation Office (ATO) is increasingly auditing online sellers. Often, red flags come down to one thing: poor bookkeeping. From cash flow mismatches to inventory discrepancies, the risks are real, and costly.

Here are the top eCommerce bookkeeping mistakes we see, and why they could land your business in the ATO’s sights.

1. Using the Wrong Accounting Method: Cash vs Accrual

Many eCommerce businesses default to the cash method because it’s simple, income and expenses are recorded when cash actually changes hands.

But if your business is growing, sells on multiple platforms, or holds inventory, the accrual method might not just be more accurate; it might be necessary.

ATO audit triggers:

• Inconsistent swings in income and expenses that don’t align with bank transactions

• Reporting low profit despite holding significant inventory

• GST registration on an accrual basis but bookkeeping on cash basis

Fix it:

• Work with your accountant to ensure your accounting method suits your business structure, growth, and obligations

• If you're registered for GST on an accrual basis, your bookkeeping must align accordingly

2. Poor Inventory Management

Your inventory is a key business asset, and one of the most common sources of accounting and tax errors.

Common issues:

• Not adjusting for Cost of Goods Sold (COGS)

• Over- or under-valuing stock at year-end

• No write-downs for lost, damaged, or obsolete goods

• No physical stocktakes or variance analysis

ATO audit triggers:

• Profit margins that don’t match sales activity

• High refunds or returns without corresponding stock or revenue adjustments

• Inconsistencies in closing stock valuations (as required by Subdivision 70-C of the ITAA 1997)

Fix it:

• Use inventory-tracking systems like DEAR, Unleashed, or Shopify integrations

• Conduct regular stocktakes and reconcile with accounting records

• Track COGS consistently based on your chosen accounting method

3. Incomplete or Inaccurate Reconciliation

Reconciliation means matching your accounting records to real-world transactions across:

• Bank accounts

• Payment platforms (e.g. Stripe, PayPal, Afterpay)

• Sales channels (e.g. Shopify, Amazon, eBay)

Common mistakes:

• Invoices unmatched with payments

• Refunds and chargebacks not recorded

• No clearing accounts for platforms like Shopify

ATO audit triggers:

• Declared revenue doesn’t match bank statements

• GST misreporting due to missed or duplicate entries

• Payment gateway income excluded from BAS

Fix it:

• Reconcile all accounts monthly, or weekly in peak seasons

• Use accounting platforms like Xero or QuickBooks with direct payment gateway feeds

• Investigate every variance, no matter how small

4. Recording Sales Net of Fees (Instead of Gross)

Marketplace platforms deduct their fees before you get paid—but you must still report the gross sale amount, not just what hits your bank account.

ATO audit triggers:

• Understating revenue by reporting only the payout

• Failing to separately claim fees as tax-deductible expenses

• Inconsistencies with third-party data (from ATO data-matching programs)

Fix it:

• Record gross revenue, then list platform fees (e.g. Amazon, Etsy) as expenses

• Set up clearing accounts for each platform to track gross sales and deductions

5. Mixing Personal and Business Transactions

Blurring personal and business expenses is one of the fastest ways to lose track of deductibility, and raise questions at audit time.

ATO audit triggers:

• Deducting private or non-business expenses (e.g. meals, travel, Netflix)

• Large transactions without a clear business connection

Fix it:

• Open dedicated business bank and credit card accounts

• Use accounting software to label and separate transactions

• Keep digital receipts and notes for every expense

Quick eCommerce Bookkeeping Checklist

Mistake	What to Watch For
Cash vs Accrual	Align method with growth stage and GST obligations
Inventory	Stocktakes, COGS tracking, and accurate write-downs
Reconciliation	Match income, refunds, and gateway activity monthly
Net vs Gross Sales	Always report gross revenue, claim fees separately
Personal Expenses	Use separate accounts and document business-only items

Need Help Untangling Your Bookkeeping?

At Dolman Bateman, we specialise in eCommerce bookkeeping, audit-proof record keeping, and tax compliance for online sellers. Our team understands the nuances of selling across platforms and helps ensure you stay compliant, organised, and growth-ready.

📞 Book a strategy session today to safeguard your business against costly errors and ATO audits.

Click here to book a meeting with Arnold

Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. All content relates to the current financial year only. Future changes to tax laws, thresholds or administrative requirements may affect the accuracy or relevance of this information, so you should always confirm that the guidance remains current. While every effort has been made to ensure accuracy at the time of publication, Dolman Bateman accepts no responsibility or liability for any loss or damage arising from reliance on this information. You should seek professional advice tailored to your circumstances before making any financial or tax decision.