Bookkeeping for Retail Stores: What Houston Shop Owners Need to Track

A boutique owner in the Heights opened her shop selling handmade candles, local art prints, and vintage clothing. She was good at buying product and great at selling it. Her weekends were packed, her Instagram had 8,000 followers, and foot traffic was steady. But when February rolled around and her accountant asked for her year-end numbers, she couldn’t explain why her bank account had $3,200 in it after a year of strong sales.

The problem was her books. She had been logging sales through Square but never reconciling what she bought against what she sold. She had no idea what her inventory cost was, no system for tracking shrinkage, and her sales tax account was a mess. The IRS doesn’t care how good your candles smell. If you can’t prove what you owe, you’re guessing (and guessing on sales tax in Texas is expensive.

Retail bookkeeping is not complicated. But it has specific requirements that general small business bookkeeping doesn’t always cover.

Inventory Cost of Goods Sold

The heart of retail bookkeeping is cost of goods sold (COGS). Every item on your shelf has a cost. When you sell it, that cost hits your income statement. The gap between what you sold it for and what you paid for it is your gross margin.

Most retail owners understand this in theory. The problem is tracking it accurately in practice.

Periodic vs. perpetual inventory. Periodic inventory means you count what you have at set intervals) monthly, quarterly, annually (and calculate COGS from the difference. Perpetual inventory means every sale automatically adjusts your inventory count in real time through your point-of-sale system.

For a Houston shop doing $300,000 or more in annual sales, perpetual inventory through a POS connected to QuickBooks or Xero is the right approach. You always know what you have, what it cost, and what your current gross margin looks like.

For smaller shops, monthly physical counts combined with purchase tracking often works. The key is consistency. Whatever system you choose, use it the same way every month.

The landed cost problem. The price on your wholesale invoice is not your full inventory cost. Shipping, customs (if you’re importing), packaging, and prep work are all part of landed cost. If you bought 200 candle jars for $400 and paid $80 in shipping, your landed cost per unit is $2.40, not $2.00. Booking only the invoice price understates COGS and overstates your gross margin.

Sales Tax in Texas

Texas sales tax is 8.25% in Houston (6.25% state, 2% City of Houston). If you sell taxable goods) and most retail products are taxable (you collect that tax from customers, hold it in a liability account, and remit it to the Texas Comptroller monthly or quarterly depending on your volume.

The mistake we see most often: retail owners treating collected sales tax as revenue. It’s not yours. It belongs to the state. When it sits in your operating account and you spend it, you end up short when the remittance is due.

Keep collected sales tax in a dedicated liability account in QuickBooks. When you file with the Comptroller, you pay from that account. Your books show the liability clearly, and you’re never caught short.

Exempt sales. Some items are exempt in Texas) most grocery items, prescription medications, and certain agricultural products. If you sell any exempt categories alongside taxable ones, you need to track them separately. Mixed-use retail is one of the more common audit triggers for the Texas Comptroller.

Cash and Register Reconciliation

If you take cash, you reconcile daily. This is non-negotiable in retail.

Your POS system should produce a daily summary: total cash sales, total card sales, total sales tax collected, and total refunds. At close, your physical cash drawer should match the POS cash balance (minus your starting float). Any variance is either over or short, and it gets recorded.

Over time, consistent variance patterns tell you something. Random small overs and shorts are normal. Consistent shorts (even small ones) can indicate shrinkage, employee theft, or a POS configuration error. You won’t catch it if you’re not reconciling daily.

Shrinkage and Loss Tracking

Shrinkage is the difference between what your records say you should have and what you actually have on the shelf. It comes from shoplifting, employee theft, damage, and administrative errors (items received but not counted, items sold but not rung up).

For Houston retail shops, shrinkage of 1-2% of retail value is typical. If you’re running 3-4%, you have a problem.

The way to catch it: regular physical counts. Spot counts on your highest-cost or highest-theft items monthly. Full counts quarterly. Every shrinkage event should be recorded as a loss (it’s a real expense, and it affects your COGS calculation.

Accounts Payable and Vendor Timing

Retail shops often pay net-30 to vendors. That means when you receive product, you have 30 days before payment is due. If you’re on cash-basis accounting and only recording expenses when you pay them, you may think you have more cash than you actually do because those vendor invoices are coming.

Accrual-basis accounting records the expense when you receive the goods, not when you pay. For any Houston retailer buying on net terms from multiple vendors, accrual basis gives you a more accurate picture of what you owe.

What Gets Missed

The boutique owner in the Heights had three specific problems we fixed after taking over her books:

First, she was booking all product purchases as “Cost of Goods Sold” immediately, even items that sat in inventory for months. COGS should recognize when the item sells, not when you buy it.

Second, collected sales tax was flowing into her revenue account. Her reported revenue was overstated by about $18,000 for the year.

Third, she had no shrinkage tracking. A physical count revealed her inventory was off by $2,100) about 3.2% of her year-end inventory value.

None of these were intentional errors. They were gaps in how the books were set up from the start.

If your retail shop is growing and your bookkeeping hasn’t kept pace, that gap gets more expensive every year. Houston bookkeeping services that understand retail inventory, sales tax, and POS reconciliation can get your books in the shape they need to be.

Call (346) 389-5215 to talk through your specific situation.