The Essential Guide to eCommerce Accounting

ecommerce bookkeeping

These methods use double-entry accounting, where each transaction must have at least two general ledger accounts assigned, which balance and offset each other. One of the most common mistakes we see bookkeepers make with ecommerce accounting is expensing all products immediately when the product is purchased from the vendor. They want to live in the bank account and track those transactions, calling it good (the poor dears!). The inaccuracies that this method causes can have a dramatic impact on your business’s success. Accounting apps and online services can save you heaps of time on sales recording, expense management, report generation, and other bookkeeping tasks.

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Need help catching up your books?

If you’re manually tracking your inventory levels, you’re wasting your time. You need the right inventory tracking software so that you can manage stock levels efficiently. Some software gives you visuals and reports of best-selling products, and notifies you when stock levels are low. They help you stay compliant with tax laws and regulations, and can even keep records of customer details.

This will allow you to quickly catch any errors that could become an issue down the road. In this system, you’re always tracking your inventory, usually facilitated by the use of automated accounting software. Maintaining an organized, cost-effective inventory is perhaps the most important aspect of any retail e-commerce business model. Maintaining inventory is more than just stockpiling items you intend to sell; it also means keeping track of your inventory cash flow. Your income statement includes all of the money brought in over a given time period, typically a month, quarter, or year.

Why would you outsource your eCommerce bookkeeping?

E-commerce accounting is the process of recording, tracking, and analyzing financial transactions that occur within an online business. Cash flow statements work with income statements and balance sheets to reveal a full picture of a company’s financial health. Potential investors or buyers also use them to evaluate whether or not a business is a worthwhile investment. As an ecommerce seller, using accrual or modified cash accounting is recommended, which provides a more accurate picture of your cash flow and enables better financial forecasting.

All ecommerce businesses who may owe more than $1,000 in taxes by the end of the year are expected to make quarterly estimated tax payments. The IRS calculates your dues based on the last return and expects payment according to the calendar. When using the cash method of accounting, you add a new record whenever the cash lands in your bank account or leaves it as an expense. This way your books mirror all the transactional information, stored across your payment methods and bank accounts.

Tax planning

As a retailer, your inventory is the bedrock of your business and almost everything you do is dependent upon it. Because of this, many of your financial documents and reports focus solely on your inventory. That’s why it’s crucial to establish clear roles and responsibilities regarding tax compliance for you, the bookkeeper, and the business.

ecommerce bookkeeping

The payment provider you use should keep a log of the fees incurred for each payment. If you use multiple payment providers for shoppers in different locations, it’s important to reconcile all the fees together to create a total amount. You can calculate COGS by adding the cost of your inventory to the purchases made during a specific time period. Subtract the cost of inventory left at the end of your timeframe to calculate your COGS.

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