Most CPG brands sell through multiple channels. Their own website, wholesale accounts, Amazon, sometimes retail marketplaces. Each channel has fundamentally different economics, different timing of revenue recognition, and different cost structures that need their own accounting treatment.
When revenue recognition is handled correctly, you get channel-level P&Ls that tell you exactly where you're making money and where you're losing it. When it's handled poorly, you get a single blended margin number that hides the truth.
DTC: Your Own Website (Shopify, etc.)
Direct-to-consumer is the most straightforward channel. It still has nuances that founders frequently miss.
When to Recognize Revenue
Revenue is recognized when the product ships to the customer. Not when the order is placed. Not when the payment is processed. The shipment date is when control of the goods transfers to the buyer under ASC 606.
For most DTC brands using Shopify, this means revenue recognition should align with fulfillment dates, not order dates. The difference is usually a day or two. But at month-end cutoffs, it can materially shift revenue between periods.
Returns and Refunds
DTC return rates typically range from 5-15% depending on category. Under accrual accounting, you should estimate and reserve for expected returns at the time of sale, not wait until returns are processed. This means:
- A refund reserve (contra-revenue) on your P&L reducing gross revenue
- A returned inventory asset on your balance sheet for product expected to come back
If you're recording returns only when they happen, your revenue in high-sales months is overstated. And your revenue in high-return months (post-holiday, typically) is artificially depressed.
Shipping Revenue and Costs
If you charge customers for shipping, that revenue is recognized alongside product revenue. Shipping costs should be recorded as a cost of fulfillment. The key is consistency. Don't bury shipping revenue in "other income" while recording shipping costs in COGS. Both should flow through the same section of your P&L so you can see the true economics.
Gift Cards and Deferred Revenue
Gift card sales are not revenue when purchased. They are a liability, deferred revenue, because you owe the customer a product. Revenue is recognized when the gift card is redeemed. Unused gift cards (breakage) are recognized over time based on historical redemption patterns.
Wholesale: Retailers and Distributors
Wholesale accounting is where things get significantly more complex.
When to Recognize Revenue
Revenue is generally recognized when the product is delivered to and accepted by the retailer. For most wholesale relationships, this means the ship date or delivery date, depending on your shipping terms (FOB shipping point vs. FOB destination).
The challenge is that wholesale customers typically pay on net 30, 60, or even 90-day terms. Cash doesn't arrive until well after revenue is recognized. Under cash basis, you'd see no revenue for months and then a large lump sum. Under accrual, you recognize revenue at delivery and record an accounts receivable for the outstanding balance.
Chargebacks and Deductions
This is the single most painful aspect of wholesale accounting. Retailers routinely deduct amounts from their payments for:
- Chargebacks: Penalties for shipping errors, labeling issues, late deliveries, or EDI compliance failures
- Slotting fees: One-time fees to get your product placed on shelves
- Trade spend and promotions: Markdown allowances, in-store promotions, BOGO deals, end-cap fees
- Freight allowances: Deductions for the retailer's cost to receive your product
- Volume rebates: Discounts triggered when the retailer hits purchase thresholds
These deductions must be accounted for properly. Trade spend and promotional allowances are typically recorded as reductions to revenue (contra-revenue), not as expenses. This distinction matters because it affects your net revenue and therefore your gross margin.
If you're recording gross wholesale revenue without netting out trade spend, your top line is overstated and your margins don't reflect reality.
Net Revenue vs. Gross Revenue
For wholesale, you must track both:
- Gross revenue: The full invoice amount before deductions
- Net revenue: What you actually collect after all chargebacks, trade spend, and deductions
Your channel-level P&L should be built on net revenue. Gross revenue is useful for understanding volume, but net revenue is what matters for profitability analysis.
Amazon: FBA and Seller Central
Amazon is the most complex channel to account for. Amazon acts as an intermediary and handles payments, returns, and fees in ways that don't align neatly with standard accounting workflows.
The Settlement Cycle
Amazon pays sellers on a 14-day settlement cycle, and each settlement bundles together:
- Product revenue
- Shipping credits
- Refunds and returns
- Referral fees (typically 15% of sale price)
- FBA fees (pick, pack, ship, storage)
- Advertising costs (if using Sponsored Products)
- Various other fees and adjustments
The settlement statement is a single net deposit into your bank account. Properly accounting for Amazon requires decomposing each settlement into its component parts and recording each one in the appropriate account.
Revenue Recognition Timing
Revenue should be recognized when the product is shipped to the customer by Amazon, not when the settlement hits your bank. This means you need to track order-level data from Seller Central or through your integration tools. You can't just rely on bank deposits.
The Fee Challenge
Amazon's fees are substantial. Often 30-40% of the sale price when you combine referral fees, FBA fees, and advertising. These fees must be properly categorized:
- Referral fees and FBA fees: These are costs of selling through the channel and should reduce your net revenue or appear in your cost structure
- Advertising (PPC): This is a marketing expense and should be recorded in operating expenses, not netted against revenue
- Storage fees: These are warehousing costs and should be categorized accordingly
The mistake many brands make is recording the net Amazon settlement as "Amazon revenue." This dramatically understates your gross revenue and makes it impossible to understand your true fee burden or compare Amazon economics to other channels.
Returns
Amazon processes returns on behalf of FBA sellers. The returns often show up in settlement statements from a different period than the original sale. Proper accounting requires matching the return to the original transaction and adjusting revenue in the correct period.
Why Channel-Level P&Ls Matter
The point of getting all of this right isn't accounting for accounting's sake. It's about building channel-level profit and loss statements that answer the most important strategic question for a multi-channel CPG brand: which channels actually make money?
A brand might see that:
- DTC has a 70% gross margin but high customer acquisition costs
- Wholesale has a 40% gross margin after trade spend but no acquisition cost
- Amazon has a 25% gross margin after all fees but provides volume and discoverability
These insights only emerge when revenue is recognized correctly, all channel-specific costs are attributed properly, and the numbers are built on accrual accounting that matches costs to revenue in the right periods.
Without channel-level P&Ls, you're making strategic decisions based on incomplete data. Where to invest. Which channels to grow. Where to cut back. In a business where margins are tight and cash is precious, incomplete data leads to expensive mistakes.