E-Commerce Accounting Fundamentals: How to Streamline Your Financial Processes for Growth

Starting a business is exciting, but many people do not understand how much accounting work is involved. When you hear the word “accounting”, you almost certainly imagine piles of papers, huge numbers and various tables. E-commerce accounting is identical to your imagination, but all the things happens digitally due to the nature of online business.

Today we’ll talk about e-commerce accounting, what it is, its peculiarities and best practices. It could appear overwhelming, but you would like someone to explain it to you. Luckily, we’re here to help.

What is e-commerce accounting?

E-commerce accounting is the technique of recording, organizing and managing financial transactions and data specific to an online business. This is quite similar to traditional business accounting, but there is a twist to it. The real problem is managing data from multiple channels, reminiscent of marketplaces and payment gateways, where information have to be ceaselessly retrieved and analyzed.

Imagine this: you sell phone cases on Amazon. You will manage transactions and inventory to maintain accurate records, and the platform will collect fees and taxes from you. You’ll need these documents to make sure you don’t find yourself in the red and, most significantly, to avoid questions from the IRS, especially when you file your tax return. What if it isn’t the only platform you employ? But let’s sort all the things out step by step.

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What does e-commerce accounting include?

When delving into e-commerce accounting, you’ll come across three fundamental points. First of all, you would like to manage bookkeeping and establish a solid workflow that permits you to easily track data across multiple platforms. Then you may have to deal with it tax management. The challenge is that taxes vary not only between states, but also between platforms. They are finally here financial reports you would like to generate that can allow you to see the full picture of your organization’s financial health.

Now let’s take a closer look at each a part of e-commerce accounting.

Bookkeeping

Accounting involves tracking your whole company’s transactions, including: sales revenue, orders, discounts, invoices, fees and returns, from all business platforms you employ.

But that is not all. As an online business owner, you furthermore mght need to keep track of your inventory, which is often scattered across different warehouses.

For example, imagine that your best-selling product suddenly runs out of stock and is stored in a warehouse positioned in one other state. Perpetrator? Poor accounting. If your data is not up to date, you may have no idea where your inventory is at, and you might miss warning signs long before your stock runs out. Good bookkeeping from the start means your shelves are all the time stocked and what you are promoting runs easily.

Tax management

Tax regulations are non-negotiable, and e-commerce accounting allows you to keep your finger on the pulse. You must at least pay sales tax, VAT and income tax. Additionally, remember about sales tax collected on your behalf by marketplaces like Amazon or eBay, depending on your state or country. Even if they are collected by platforms, it is still your responsibility to properly record your taxes because they are related to what you are promoting. That’s why you would like to keep track of all of your taxes on your books.

Preparation of monetary statements

Financial reporting consists of a number of reports that provide information from different perspectives. These statements include:

With accurate financial statements, you may give you the chance to quickly monitor your organization’s financial health by tracking assets and liabilities, checking overall profitability, and revealing how much money is coming in and going out. But in e-commerce, where sales, returns and fees move at the speed of sunshine, how do you retain track of all the things? The biggest challenge is taking a huge load of knowledge and turning it into a neat stream of useful data, without getting buried under it.

To take Square QuickBooks integration via Synder as an example. Automation with this software offers you the ability to sync with over 30 platforms. You’ll also get real-time data logging, error-free billing, accurate profit and loss reporting, inventory tracking, and even gift card registration. Moreover, thanks to automation, you possibly can finally ensure that fees from various platforms are recorded appropriately.

Accounting methods in the e-commerce industry

The big query is: how should accounting be done in e-commerce? There are two methods used in each traditional accounting and e-commerce that may allow you to manage your books:

Cash accounting is an accounting method that records transactions when money changes hands. On the surface, money accounting is quite easy, but as with any a part of accounting, it is essential to watch out. The principle is easy: sales are recorded when payment is received and expenses are recorded when they are paid.

Note: If a company averages $26 million or more in gross revenue over a three-year period, IRS rules require switching to the accrual method. Therefore, it might be a good idea to start with accrual accounting.

In accrual accounting expenses are recorded when the invoice is received and revenues are recorded when the transaction is accomplished. If your organization uses accrual accounting, it is going to be easier for you to understand the profitability of transactions.

Note: When using accrual accounting, it is best to use a double-entry system. This signifies that each transaction must be recorded as each a debit and a credit to different accounts, making it more accurate and reliable than single-entry posting.

What must you remember when conducting accounting in e-commerce?

E-commerce accounting is not easy, and the nuances are more significant than you may think. With so much data, it is simple to feel lost – after all, we’re only human. However, if you select the online business route, you would like to be prepared. Here are some basic tasks related to routine accounting and why they are essential:

• Track all the things every day: To stay on top of what you are promoting, you would like to track your whole company’s transactions on a every day basis. It includes tracking sales, expenses, taxes and fees from various platforms. This way you’ll detect errors early and keep your books in pristine condition.
• Reconcile the books monthly: Reconciliation is something that can not be neglected. When your data matches without errors or duplicates, it offers you peace of mind all 12 months round, especially during tax season.
• Manage monthly financial reports: Your financial statements are your best advisors on the financial support of what you are promoting. By properly managing your income statements, balance sheets and money flow reports, you’ll keep what you are promoting flexible and ready for whatever comes your way.
• Handle taxes annually: Tax season may be a real nightmare, especially for online businesses that handle taxes from multiple marketplaces, but accuracy is key. If your transactions are recorded and accounted for properly, your tax season will probably be much easier and smoother.

You could also be wondering, “How can I juggle all these tasks myself?” The answer is easy: automation. Trying to handle all the things manually can quickly turn into costly in terms of time and money, leading to errors and messy books. One miss can trigger a series of headaches. But with automation software at your fingertips, you possibly can streamline these processes, reduce errors, and save a lot of stress.

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Application

E-commerce accounting could appear difficult, but once you learn the basics, it becomes much easier. By having basic functions like accounting, tax management and inventory tracking at your fingertips, you are setting what you are promoting up for success. The right approach combined with automation eliminates errors and saves your time. Sure, it might be discouraging at first, but once you get in the water, you may swim forward with confidence!