Ecommerce Shipping Cost Accounting in 2025: Guide for Shipping Accounting

Let’s be blunt—if you’re running an ecommerce brand and not accounting for shipping costs properly, you’re leaking money. Shipping is one of the biggest expense categories on your P&L, typically making up a substantial portion of net sales (especially for heavier and bulkier items). But what is interesting here is how many brands—even fast-growing 8-figure ones—are getting this wrong.

At Finaloop, we’ve cleaned up the books for thousands of ecommerce brands. Across the board—Shopify stores, Amazon FBA sellers, DTC brands—the same issues pop up: inflated margins, misreported shipping income, and missed tax deductions. If you want accurate financials, real profitability, and investor-ready books, you need to fix your shipping ecommerce accounting.

This guide will break it all down—how to treat customer-paid shipping, what to capitalize, what to expense, and how to avoid the most common traps we see every day.

Why does Shipping Accounting Actually Matter?

Think shipping accounting is a bookkeeping footnote? Think again. Here’s why this should be front and center in your finance stack:

1. Tax Optimization

If you’re not handling freight-in properly, you’re likely overpaying taxes. Businesses under $25 million in average gross receipts (indexed per year) can elect to expense inbound shipping immediately instead of capitalizing it—under the Section 263A/471(c) safe harbor (if they do not keep track of their inventory costs-see below). This gives you a major upfront deduction- generally applicable for dropshipping type brands. 

2. Investor & Buyer Confidence

VCs, private equity firms, and acquirers zero in on gross margins. If you’ve got fulfillment costs buried in operating expenses or shipping revenue bundled into product sales, your margins are misleading. At Finaloop, we push shipping costs above the line—within COGS—so you get a true gross margin that reflects actual order-level profitability.

3. Operational Clarity

You can’t price your SKUs properly or negotiate with 3PLs if you don’t know your real fulfillment costs per order. Accurate shipping data = better decisions = more margin.

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What is the difference between Shipping Freight-In vs. Freight-Out?

To clean up your shipping numbers, start by breaking costs into two buckets:

Freight-In (Inbound Shipping)

These are the costs of getting inventory to your warehouse or 3PL. Includes:

• Freight from manufacturers or suppliers
• Port-to-warehouse transit costs
• Duties, tariffs, customs fees
• Freight forwarding and import logistics
  
  

GAAP Treatment: Capitalize to inventory. It becomes part of your product’s cost basis and sits on your balance sheet until the product sells.

Tax Treatment (Section 263A/471(c)): If you’re under $25M in average gross receipts (indexed), you can expense these costs immediately (if you don’t keep active track of your inventory cost). This safe harbor is a no-brainer for brands that are in spaces like dropshipping.

Example:
‍Buy $20,000 worth of inventory + $3,000 in inbound freight.

• GAAP: Inventory is valued at $23,000.
• Tax: You may deduct the $3,000 now, if you qualify.
  

Freight-Out (Outbound Shipping)

This includes all costs to get your product to the customer:

• Shopify Shipping
• FedEx, UPS, USPS
• 3PL shipping/fulfillment charges
• Amazon FBA shipping from your warehouse to Amazon’s center
  
  

Accounting Treatment: Freight-out is a period expense recorded at the time of sale. But here’s the twist—at Finaloop, we include freight-out in non-product COGS, not in operating expenses. Why? Because fulfillment is directly tied to each sale. It’s a core component of delivering your product, not overhead.

The Part Most Brands Get Wrong: Customer-Paid Shipping

This is where things usually go sideways. Here’s how to handle it the right way—no matter how you charge for shipping.

Scenario 1: Customer Pays a Separate Shipping Fee

This is the most common setup:
Product price: $80
Customer pays $10 for shipping
Your actual cost: $14

Correct Accounting (The Finaloop Way):

• Revenue - Product: $80‍
• Revenue - Shipping: $10‍
• COGS - Shipping Cost: $14
  

Gross Profit: $76

Why this matters:
You made $80 on the product and lost $4 on shipping. That insight disappears if you net shipping revenue and costs or lump shipping income into product revenue.

What NOT to do:

• Don’t bundle shipping revenue into product sales.
  
• Don’t net shipping costs against shipping income.
  
• Don’t ignore the impact of fulfillment on margins.
  

Scenario 2: “Free” Shipping Built Into Product Price

Many brands offer free shipping by rolling the cost into the product price. That’s totally fine, but it changes how you record things.

Accounting Treatment:

• No shipping revenue
  
• All fulfillment and shipping costs go into COGS (either product or non-product COGS)
  
• Gross margin reflects the bundled shipping cost
  
  

Pro tip: Even if you're offering free shipping, track shipping costs per order internally. You need that data to keep an eye on rising carrier rates and to stay sharp when renegotiating with your 3PL.

Scenario 3: Hybrid Model (Free Over $X)

You offer free shipping over $75 but charge $5 on smaller orders. Welcome to the hybrid model.

Here’s how to handle it:

• Orders under $75 → follow Scenario 1
  
• Orders over $75 → follow Scenario 2
  
  

Your system (whether it's Finaloop or another) needs to handle this logic consistently.

How to Set Up Your Chart of Accounts for Shipping

A messy chart of accounts is a massive blocker to clean financial reporting. Here's the ideal structure we use at Finaloop, using our ecommerce bookkeeping software, for thousands of ecommerce clients:

Balance Sheet

• Inventory (Includes capitalized freight-in)
  

P&L

• Revenue – Product Sales
  
• Revenue – Shipping & Handling
  
• COGS – Product Cost
  
• COGS (non product) – Fulfillment & Freight-Out
  
• Gross Profit
  
• Operating Expenses
  
• Net Income
  
  

This structure gives you:

• Real gross margin insight
  
• Clear unit economics
  
• Separation of shipping profitability
  
• Tax-compliant treatment of freight-in

Real-Life Example: Full Shipping Accounting in Action

Client: Fast-growing DTC skincare brand
Platform: Shopify + ShipBob

Inventory Purchase:

• 1,000 units @ $12 = $12,000
  
• Freight-in from overseas = $1,400
  
• Capitalized Inventory: $13,400
  
• Unit Cost: $13.40
  
  

Customer Order:

• Product Price: $60
  
• Customer-paid shipping: $6
  
• ShipBob fulfillment/shipping cost: $8
  ‍
  

Correct P&L Treatment:

• Revenue – Product: $60.00
  
• Revenue – Shipping: $6.00
  
• COGS – Inventory: $13.40
  
• COGS – Shipping: $8.00
  
• Gross Profit: $44.60
  
  

The power of this view? You can now track SKU profitability and shipping profitability. That’s gold when you’re scaling. Using automated shipping cost accounting is definitely the way to make sure you can actually track your profits on time and real time.

Section 471(c) and the $25M (indexed) Rule: The Tax Move Most Brands Miss

Here’s the breakdown:

Under $25M in Gross Receipts (3-Year Avg)- indexed per year to 31M in 2025

• Immediately expense inbound shipping (freight-in)
  
• Simple, powerful tax deduction
  
• Reduces your taxable income today
• Only works if you don’t track your inventory costs

Over $25M (adjusted) in Gross Receipts (3-year Avg)

• Must capitalize freight-in into inventory
• You deduct the cost only as inventory is sold
• More complex tracking and reporting
  
  

Important: Freight-out is always deductible immediately, regardless of your size.

Also note: Shipping revenue is always taxable income

Technology Solutions: Automate or Die Trying

Trying to do this with spreadsheets? Good luck with that. 

At Finaloop, we’ve built our platform to automate all of this with precision. You get:

• Sync with Shopify, Amazon etc
• Freight-in and freight-out treatment built in
• Separate shipping revenue tracking
• Clean landed costs reporting per SKU

Final Thoughts

Shipping costs are no longer just a line item—they're a strategic driver of your margins, taxes, and operational efficiency. If you're serious about profitability, you need to stop winging it. Especially in the wonky world of 2025, with tough margins and crazy tariffs.

Ready to level up your accounting?