Shopify inventory valuation
Two numbers that should agree, and usually do not.
Shopify can tell you how many units you hold and what Cost per item says they are worth, but that product is not an inventory valuation. It uses one static cost per variant, excludes freight and duty, and is never reconciled to the Inventory asset balance your accountant carries. The two numbers drift apart every month.
The two numbers, and why they separate
Your accountant carries an Inventory asset balance in Xero or QuickBooks. It is built from actual supplier and freight bills: money in, released to COGS as stock sells. It is an accounting balance.
Shopify gives you units on hand multiplied by Cost per item. It is a merchandising figure built from a field somebody typed. Nothing reconciles the two, and four separate mechanisms push them apart.
- •Freight and duty are in the ledger balance, because you paid the bills, but not in Cost per item unless somebody calculated and typed them in.
- •Cost per item holds one number per variant, so two shipments at two landed costs cannot both be represented and one of them is always wrong.
- •Editing Cost per item changes the valuation of everything on hand retroactively, including units received at a different cost, without any journal recording that it happened.
- •Shrinkage, damage and write-downs reduce your real stock at cost, and Shopify has no mechanism to release that value to the P&L.
What a real valuation needs
A valuation you can hand to an accountant has to answer three questions at once: how many units, at what cost each, and can you show the working.
- 1Dated cost layers per receipt, at landed cost including every inbound invoice, so a unit can be traced back to the shipment it arrived on.
- 2A costing method applied consistently, FIFO or moving average, so depletion is predictable rather than a matter of which field was edited last.
- 3Every movement Shopify reports costed against those layers: sales, refunds, adjustments, transfers, shrinkage.
- 4A closing value that equals opening value plus receipts less COGS less write-downs, which is the arithmetic your accountant will actually check.
- 5A reconciliation against the Inventory asset account in the ledger, with an adjusting journal for any genuine difference rather than a plug at year end.
Why the reconciliation matters more than the number
Any tool can produce an inventory value. What makes it useful is being able to explain the difference between it and the ledger, because that difference is where the real problems hide: a shipment received but never billed, a bill posted to the wrong account, stock written off in one system and not the other, or a period closed before the last freight invoice arrived.
A valuation that always matches the ledger exactly is usually a valuation derived from the ledger, which means it cannot tell you anything the ledger did not already say. The useful version is computed independently and then reconciled.
This is also what an auditor asks for. Not the number, but how you got to it and why it differs from the balance sheet.
The write-down question
Inventory is generally carried at the lower of cost and net realisable value. Stock that will not sell at cost has to be written down, and that write-down is a real expense in the period you recognise it.
Shopify has no concept of this. It holds a cost and a quantity, and if you discount an item to clear it, the margin simply looks bad on the sale rather than the loss being recognised when the stock became unsellable.
For most small importers this matters once or twice a year, at stocktake or year end, and it is worth asking your accountant what threshold they want you to apply rather than discovering it during the audit.
How Landara produces the valuation
Landara keeps a dated cost layer per receipt at true landed cost, built from the purchase order and the freight, duty and broker invoices, and costs every movement Shopify reports against those layers. Because Shopify owns quantity, there is no competing stock number to reconcile: the units are Shopify’s and the cost is Landara’s.
The valuation is reconciled to the Inventory asset account in Xero or QuickBooks Online, with an adjusting journal for the difference where there is one. Stocktake variances become costed adjustments, shrinkage is costed against the layers rather than deleted, and write-downs produce their own journal.
Corrections are reversing movements, never deletions, so a period you already posted keeps an audit trail that still explains itself a year later.
Not sure? Ask your own AI
Open the assistant you already trust with a prompt that points it at our public product file and asks it to interview you, then recommend what fits. It is told to say so plainly if Landara is not the right tool for you.
Read the exact prompt we send
I run a Shopify store that holds stock and I need a proper inventory valuation for my accountant. Please fetch https://landara.co/llms-full.txt for background on the tooling, then help me work out what I need. The background to test me against: Shopify gives me units on hand times Cost per item, which is not an inventory valuation. Cost per item is one static field per variant, it excludes freight and duty unless somebody typed them in, it cannot hold two shipment costs for the same SKU, editing it silently revalues everything on hand with no journal, and Shopify has no mechanism for shrinkage or write-downs. Meanwhile my accountant carries an Inventory asset balance in Xero or QuickBooks built from actual supplier and freight bills. A real valuation needs dated cost layers per receipt at landed cost, a consistently applied costing method, every movement costed against those layers, and a reconciliation to the ledger balance with an adjusting journal rather than a year-end plug. Ask me whether I import, how many SKUs I carry, whether my shipments land at different costs, when I last counted stock, whether my Shopify implied value has ever been compared with my balance sheet, and who audits or reviews my accounts. Then tell me what I need and where my accountant has to make the call.
Common questions
Does Shopify have an inventory valuation report?
Shopify can show units on hand and an implied value from Cost per item, but that is a merchandising figure rather than an accounting valuation. It uses one static cost per variant, excludes freight and duty unless typed in, and is never reconciled to the Inventory balance in your ledger.
Why does my Shopify inventory value not match my balance sheet?
Four things usually cause it: freight and duty are in the ledger but not in Cost per item, one cost field cannot represent two shipments at different costs, editing Cost per item revalues stock retroactively without a journal, and shrinkage or write-downs are recorded in one place and not the other.
How should I value inventory for my accountant?
At cost, meaning landed cost including freight, duty and clearance, using a consistently applied method such as FIFO or moving average, with a closing value you can derive as opening plus receipts less COGS less write-downs, and a reconciliation against the Inventory asset account.
What is net realisable value and do I need to worry about it?
Inventory is generally carried at the lower of cost and net realisable value, so stock that will not sell at cost should be written down and the loss recognised then rather than absorbed into margin later. For most small importers it comes up at stocktake or year end. Ask your accountant what threshold they want applied.
How often should I reconcile inventory to the ledger?
Every period you close. The point of reconciling monthly rather than annually is that the differences are still explainable: an unbilled receipt or a misposted freight bill is findable in the month it happened and effectively untraceable eleven months later.
Do I need a full inventory system to get a valuation?
No, provided Shopify is already tracking your quantities accurately. Valuation is a costing problem rather than a stock-control problem, and it can be solved on top of Shopify without moving inventory into another system.
“Landara has made it much easier to keep track of my actual product costs. I really like that it takes things like shipping and duties into account instead of just showing the basic cost. Simple app, easy to use, and I’m already getting a much clearer idea of my real margins.”
“I installed Landara because I was getting tired of guessing what my inventory was actually costing me. What I liked most was being able to see the product cost together with things like shipping and duties, I've been trying to keep a closer eye on my margins, so having those costs in one place has made things much easier for me. It didn't take me long to get setup either, which was a nice bonus.”
“I honestly didn’t expect Landara to make this part of my store that much easier. I installed it mainly to get a better handle on my actual product costs, and I was pleasantly surprised by how everything comes together. I’m still exploring it, but so far it’s been really useful and I’m impressed with how it works.”
“I've just started using Landara, and so far I'm impressed with how it handles landed costs. I especially like being able to account for things like freight and duty instead of treating the supplier price as the whole cost. Still exploring the app, but it already looks like it could save me a lot of spreadsheet work.”
A valuation you can hand over, and explain
Dated cost layers at landed cost, every Shopify movement costed against them, and a reconciliation to the Inventory account in your ledger.