Quality of earnings readiness: the monthly records to keep

Published on Beamarc: September 30, 2026.

A quality of earnings process examines the sustainability of earnings and the records supporting them. Maintaining those records monthly makes them easier to produce when a transaction is being considered.

Buyers and lenders may need source reports, consistent accounting policies and reconciled schedules in addition to financial statements.

A quality of earnings analysis can test those connections through reconciliations, trend analysis and proposed earnings adjustments.

A typical quality of earnings engagement is transaction diligence, not an audit or financial-statement review, and does not provide an audit opinion or review assurance. A compilation also provides no assurance. The engagement terms define the actual work and reporting.

What QoE teams actually do

Most QoE work is trying to answer three questions:

Are earnings real and repeatable?

They test revenue recognition, returns, fees, and cutoff. They isolate one-time items and “adjusted EBITDA” claims.

How is working capital supported?

Inventory, AR, AP, accrued expenses. They model the cash conversion cycle and working capital target.

Are liabilities complete and supported?

Review tax balances, refunds, gift cards, disputes, debt and other obligations. Their treatment in a transaction depends on the agreement and the facts.

If your close process can’t produce support for those three questions quickly, diligence turns into a scramble.

The ecommerce-specific problem: settlements are not sales

Ecommerce diligence becomes more difficult when net deposits are used as revenue without the underlying settlement detail.

Settlement channels pay you net after fees, refunds, and adjustments. Diligence requires you to show the gross → net → cash bridge, by channel.

Baseline requirement: deposits must be explainable

Record gross activity per policy (don’t book net deposits as revenue)

Map fees/refunds/chargebacks to consistent GL accounts

Tie payout/settlement IDs to bank deposits

Clearing = pending items only (aged, documented, owned)

If you can’t do this, QoE teams can’t validate revenue, fees, refunds, or sales tax liabilities from your financials alone.

Start here if you’re not already doing it: Multi-channel ecommerce reconciliation: a monthly close.

The “most common QoE adjustments” list for ecommerce

These aren’t theoretical. These are the places ecommerce financials usually break.

QoE adjustment map (what gets challenged)

• Revenue (gross vs net). What goes wrong: Net deposits booked as revenue; discounts/refunds not separated; inconsistent channel mapping; Supporting records: Gross sales recorded; contra-revenue for discounts/returns; channel bridges to deposits
• Returns & refund cutoff. What goes wrong: Returns recorded when processed, not when incurred; refund timing distorts margin; Supporting records: Consistent policy; returns/allowances support; reconciliation to platform reports
• Processor & marketplace fees. What goes wrong: Fees obscured by unsupported or inconsistent classification; blended % estimates; missing chargeback/dispute fees; Supporting records: Fees mapped consistently and tied to settlement detail
• Inventory & COGS. What goes wrong: Landed costs incomplete; inventory not tied to GL; write-downs/shrinkage delayed; Supporting records: Inventory rollforward, landed cost support, and documented valuation method
• Gift cards / store credit. What goes wrong: Cash received treated as revenue immediately; liabilities missing; Supporting records: Clear liability tracking and redemption support; supported breakage recognition under the reporting framework and applicable unclaimed-property requirements
• Sales tax payable. What goes wrong: Tax collected recorded as revenue; liabilities not reconciled to filings; marketplace facilitator confusion; Supporting records: Sales tax tracked as liability; remittances tied to filings; marketplace rules reflected in policy
• Payroll & accruals. What goes wrong: Cash-basis payroll or missing accruals; bonus/commissions not accrued; Supporting records: Accrual-based payroll schedule; recurring accruals booked and reversed consistently
• Add-backs / “adjusted EBITDA”. What goes wrong: “One-time” claims with no evidence; personal expenses mixed in; aggressive normalization; Supporting records: Each add-back documented, repeatability explained, evidence attached

This is a diligence lens. Your reporting framework, materiality, and deal terms will drive specifics.

Inventory deep dive: Inventory, cost of goods sold and product margins. Returns cutoff: Returns, refunds and chargebacks: getting cutoff right.

The QoE-prep close: what you should be able to produce monthly

A consistent monthly close can produce much of the support needed for diligence. Transaction-specific schedules may require additional work.

Monthly “defensible financials” checklist

• Control 1 Bank ties out. Bank and credit cards reconciled; no unexplained reconciling items aging forever.
• Control 2 Settlement tie-outs by channel. Shopify/Amazon/Stripe/PayPal clearing accounts reconcile to payout/settlement detail and bank deposits, with aging.
• Control 3 Revenue/returns support. For principal sales, revenue is recorded before processor fees, with appropriate discounts and returns; apply cutoff consistently. Assess principal-versus-agent arrangements separately.
• Control 4 Inventory rollforward. Beginning inventory + purchases/landed costs − COGS ± adjustments = ending inventory tied to GL.
• Control 5 Sales tax payable is real. Liability reconciled to filings/remittances; marketplace facilitator treatment documented.
• Control 6 Accruals are complete. Payroll, freight-in, duties, and other material accruals captured; reversals controlled.
• Control 7 Add-backs have evidence. Anything you might call “non-recurring” is tracked contemporaneously with documentation.

Your data room: what to have ready before anyone asks

Keep the data room organized around the records requested and link each schedule to its source evidence.

Minimum QoE-ready data room (ecommerce)

• Financials. What to provide: Monthly P&L and balance sheet (12–24 months), plus YTD; consistent chart of accounts
• Cash support. What to provide: Bank statements; bank recs; debt/credit line statements
• Channel support. What to provide: Shopify payouts, Amazon settlement statements, processor reports; clearing account reconciliations
• Inventory & COGS. What to provide: Inventory rollforward, valuation method note, landed cost support, write-down/shrinkage log
• Returns/chargebacks. What to provide: Returns/refunds summary, chargeback logs, reserve/hold support
• Sales tax. What to provide: Registration list, filing calendar, filed returns, remittance confirmations, liability reconciliation
• Adjusted EBITDA. What to provide: Add-back schedule with narrative + evidence (contracts, invoices, payroll records)

Keep the schedules and source records together so another reader can follow the amounts and open questions.

Use the close to inform recurring decisions

Reliable monthly results give you a basis for comparing revenue, returns, margins, and cash timing with the assumptions in your plan. An agreed engagement cadence can use that information to:

• Update profit and cash forecasts as sales, costs, and commitments change.
• Assess changes in product mix, pricing, and channel economics.
• Evaluate upcoming inventory and production commitments against the cash forecast.

Beamarc accounting advisory can use supported records to assess the questions relevant to your business. Deliverables, responsibilities, timing and fees are agreed in writing.

This accounting advisory work does not provide a QoE report, valuation, assurance, or transaction opinion.

Completion checks

Explainable

Every material balance ties to a schedule and source support

Repeatable

Close controls run monthly, not “special for the deal”

Defensible

Policies are documented; treatment is consistent period to period

Fast

You can answer diligence questions with evidence, not guesswork

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FAQ

Is a Quality of Earnings (QoE) report the same as an audit or review?

A typical QoE is transaction diligence, not an audit or financial-statement review. Its engagement terms define the work; a QoE report should not be represented as an audit opinion or review conclusion.

What do QoE teams focus on for ecommerce brands?

Revenue quality and cutoff, inventory/COGS accuracy, working capital and cash conversion, and evidence-backed normalization adjustments.

What’s the biggest QoE failure for multi-channel sellers?

Unreconciled settlement activity. If payouts and deposits don’t tie out, your revenue and fee numbers aren’t defensible.

What documents do I need for an ecommerce QoE data room?

Monthly financials, bank statements, settlement reports, inventory and landed cost support, returns support, sales tax support, debt schedules, and an evidence-backed adjusted EBITDA bridge (if used).

How early should I prepare for QoE or due diligence?

Set the timetable around the records available, the periods requested, and the planned transaction. Allow time to correct gaps and establish consistent monthly reporting.

Can I just give buyers my tax return and call it done?

Usually no. Tax returns aren’t designed to prove operational drivers, working capital, or normalized earnings. Buyers and lenders typically require financials plus tie-outs and support.

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Gift-card age alone does not justify income. Before recognizing breakage, establish entitlement under the revenue guidance and any unclaimed-property obligation; amounts owed to a government remain liabilities.

How Beamarc can help

Beamarc provides bookkeeping, monthly close, financial reporting and accounting advisory. We can discuss the records available, the questions you need answered and the support that fits your business. Scope, responsibilities, timing and fees are agreed before work begins.

Request a consultation.

Related reading

• Preparing ecommerce records for investor due diligence
• Month-end close schedule: a practical template
• Returns, refunds and chargebacks: getting cutoff right

General information only. Accounting and tax treatment depend on your facts and reporting framework. This article does not provide assurance or establish a client relationship.