Ecommerce Accounting: A Useful Guide

Ecommerce accounting is the key component of the eCommerce business. Your struggles get multiplied according to the growth of your eCommerce business. You will need adequate analysis and categorization of all your financial activities like sales, returns, payments, and banking with proper reporting.

A Useful Guide For Ecommerce Accounting

The Better management of your money flow determines the success of your eCommerce business. For that, all you need is a suitable accounting system. When your accounting system becomes the best, it will save you from disastrous experiences in the future. If you aim for success in the eCommerce business, this guide will help you with all you need to know about improving your accounting criterion.

✅ Know the Basics

Accounting aims to set up your financial knowledge so that you make your business agreements and choices smarter. The baseline accounting practice in keeping clear financial documentation is bookkeeping. Where you record everyday transactions up-to-date. Accounting depends on the analysis of each financial record you get through bookkeeping. Then you will get a clear idea of your current status in the field. 

️⃣ The different tasks in bookkeeping are:

• Categorization of transactions
•  Invoicing
• Account reconciliation
• Preparation of balance sheets
• Payroll management
• Management of account payables and receivables

️⃣ Whereas accounting tasks include:

• Adjusted Entries Preparation
• Audits on financial information
• Tax Planning and reporting
• Risk analysis and financial forecasting
• Arrangement of financial statements, reports, and models.

 ✅ Either Ways of Accounting You Can Follow

1. Cash Basis Accounting

Here all of the money transactions in your account are recorded. It is the best option for small eCommerce startups as the system is simple to keep. You will get the advantage of small tax bills since there are no income taxes on the payments that you haven’t received yet. Small eCommerce sellers, maker business, products on demand stores, amazon FBA stores, and Drop Shipping operations are the areas where Cash Basis Accounting works out. However, it is better not to try Cash Basis Accounting if you have a high stock business with multiple suppliers and planning to apply for a loan for your business.

2. Accrual Method

It is the traditional accounting method where a complete recording of each sale or expense happens after they take place. It doesn’t focus on the time in which the transaction was held. At the first glance, the Accrual method seems more complex than a cash-based transaction. Because you need to focus more on the payable and receivable accounts.

But after getting used to such tasks, you will understand its worth. You will get a realistic image of your income every month. More authentic financial projections will come in your way since you are bothered about your financial contracts in the present and future. Following the Accrual method will make your operations more profitable as well.

✅ Essentials for Starting Your Ecommerce Accounting

1. Business Tax ID Number

You should have an EIN (Employer Identification Number) from the IRS to move as a corporation or a partnership. Every tax document needs this 9-digit identifier to get used in.

2. Business Bank Account

You should have a bank account that is solely dedicated to business purposes apart from the personal one. Never spend any money from your business account for your personal needs, unless your expenses get qualified as deductible. At the same time, you can use your personal account reasonably to meet your business needs and claim them back as “out of pocket” expenses. 

3. Accounting Software

You can save a lot of your time and energy if you use any accounting software to manage all of your business activities. There is plenty of accounting software that you can choose from, including:

• Quickbooks Online
• Xero 
• FreshBooks
• Wave
• Kashoo
• Sage

 ✅ The 5 Essential Tasks

The essential tasks of eCommerce accounting are: 

1. Categorization of all transactions
2.  Business budget maintenance
3. Updation of tax details
4. Analyze returns and chargebacks
5. Accurate record-keeping

Proper execution of each of these tasks will help you understand everything related to your financial transactions and make you well equipped in tax season.

✅ The 2 Major Expected Issues

1. Procrastinating Financial Statement Reviews

Never postpone the expense categorization, as the chances are great that you would miss any of the important aspects. To solve this, you can spend 2-3 hours reviewing everything. Kibo Code Quantum tool is definitely worth the money, and we feel like the review we provided you with reflects that well.

2.  Missing Errors

When you don’t have enough time to record all activities and transactions, you do it in a hurry so that a lot of errors will come up. This may result in avoiding your financial projections and loss of money.

To Enhance your eCommerce finances, It is not necessary to be an expert in accounting. Although, convenient applications with an appropriate accounting system and the best accounting software will make you well equipped to succeed in the field of eCommerce business.