Mastering Etsy: Reconcile 1099 to Profit & Loss

Table of Contents

1. Introduction
2. Understanding Profit and Loss in QuickBooks Online
3. Tying Profit and Loss to the 1099 from Etsy
4. Example A: Tying Profit and Loss to the 1099
5. Example B: Resolving Differences in Tying Profit and Loss to the 1099
6. The Importance of Using the Etsy Statement CSV for Monthly Entries
7. Fixing Differences with Reversing Entries
8. Step-by-Step Guide: Reversing Entries for Tying to the 1099
9. Tips for Tying Profit and Loss to the 1099 in QuickBooks Online
10. Conclusion

Introduction

Matching your profit and loss information in QuickBooks Online with the 1099 you receive from Etsy is an essential task for any Etsy seller. By ensuring these numbers align, you can accurately report your income and avoid any discrepancies with the tax authorities. In this article, we will guide you through the process of tying out your profit and loss in QuickBooks Online to the 1099 from Etsy. We will provide step-by-step instructions and examples to help you understand the process better and resolve any differences that may arise.

Understanding Profit and Loss in QuickBooks Online

Before we dive into the process of tying profit and loss to the 1099, let's first understand how QuickBooks Online calculates and presents your profit and loss information. QuickBooks follows a specific method for deriving the profit and loss numbers, which aligns with the Etsy bookkeeping method proposed by Small Business Sarah. It is essential to follow this method consistently to ensure accurate results. If you haven't been following this method, the numbers in your profit and loss statement may not tie to the 1099.

Tying Profit and Loss to the 1099 from Etsy

To tie your profit and loss information in QuickBooks Online to the 1099 received from Etsy, you need to follow a specific process. We will walk you through two examples - Example A and Example B - to demonstrate how to tie the numbers successfully. Example A will show you a case where the numbers tie perfectly to the 1099, while Example B will illustrate a small difference and how to resolve it. By following these examples, you'll learn the steps involved and gain confidence in the method.

Example A: Tying Profit and Loss to the 1099

In Example A, we have total Etsy sales of $178,000, refunds of $8, and shipping income of $30,000, resulting in a total of $200,191.97. To tie this to the 1099, you need to consider that the 1099 number is reported before refunds. Therefore, you should only include your sales and shipping numbers, excluding refunds. Additionally, you need to add any sales tax you have collected throughout the year. By following these steps, you can tie the profit and loss numbers to the 1099 accurately.

Example B: Resolving Differences in Tying Profit and Loss to the 1099

In Example B, we encounter a small difference when tying profit and loss to the 1099. We have Etsy sales of $72, refunds of $1,300, and shipping income of $1,100, resulting in a total of $72,720. The slight difference arises due to timing discrepancies between reports. By understanding the underlying reasons for this difference and following the proper accounting practices, you can resolve the discrepancy and ensure accurate tying to the 1099.

The Importance of Using the Etsy Statement CSV for Monthly Entries

To accurately track your Etsy sales and fees, it is crucial to utilize the Etsy statement CSV file for your monthly entries. This file contains all the necessary information, including sales, fees, and other essential details required for accurate bookkeeping. By relying on this file and following the recommended method, you can ensure that your cash picture aligns with your bookkeeping records, enabling you to tie your ending Etsy balance accurately.

Fixing Differences with Reversing Entries

When you encounter differences between your profit and loss and the 1099 for your Etsy sales, a simple solution is to utilize reversing entries. These entries allow you to correct any discrepancies caused by timing differences between reports. By posting a reversing entry on the last day of the year and then reversing it on the first day of the following year, you can ensure that the numbers align accurately with the 1099.

Step-by-Step Guide: Reversing Entries for Tying to the 1099

To perform reversing entries and resolve differences when tying to the 1099, follow these steps:

1. Identify the difference between your profit and loss and the 1099.
2. Post a reversing entry on the last day of the year to adjust your profit and loss.
3. Reverse the entry on the first day of the following year to ensure accurate tying.
4. Update your records and ensure the numbers now tie to the 1099 accurately.

By following this step-by-step guide, you can effectively resolve differences and improve the accuracy of your profit and loss tying to the 1099.

Tips for Tying Profit and Loss to the 1099 in QuickBooks Online

To ensure a smooth process and accurate tying of profit and loss to the 1099 in QuickBooks Online, consider the following tips:

1. Consistently follow the recommended Etsy bookkeeping method by Small Business Sarah.
2. Regularly review and reconcile your profit and loss statements with the 1099 from Etsy.
3. Pay attention to timing discrepancies between reports and utilize reversing entries to resolve differences.
4. Keep detailed records of your Etsy sales, refunds, shipping income, and sales tax collected throughout the year.
5. Communicate with your tax preparer and provide them with a breakdown of the numbers used to tie to the 1099.

By implementing these tips, you can streamline the process and ensure accurate reporting of your Etsy income.

Conclusion

Tying your profit and loss information in QuickBooks Online to the 1099 received from Etsy is crucial for accurate income reporting and tax compliance. By following the recommended method and utilizing the proper tools and practices, you can ensure that your numbers tie accurately. In this article, we walked you through the process, provided examples, and shared valuable tips to help you navigate the tying process with confidence. Remember to consistently follow the recommended bookkeeping method and keep detailed records to maintain accurate financial information for your Etsy business.