Ecommerce Accounting 101

Managing your eCommerce books becomes easier once you and your bookkeeper have the right tech stack in place and stick to a solid process. The easiest way to think about this is that the accountant is like the chef and the bookkeeper is the prep chef. Having up-to-date books matters because it allows you to know how your business is performing at any given time. Not only will this ensure that your business remains tax-compliant, it will also save you a great deal of time and make your life a whole lot easier. This will, in turn, leave you with the luxury of more capacity to focus on moving your business forward.

A great deal of the overarching accountancy obligations for ecommerce businesses are the same as they would be in a regular (non-ecommerce) business. However, ecommerce business owners also need to be aware of some specific rules and regulations that they must adhere to that don’t necessarily apply to their non-ecomm counterparts. However, many ecommerce businesses will be registered as limited companies, which means they can’t just take money from the business and move it into their personal savings. So, as a limited company, if you are looking to build savings directly from your business income, you’ll need to do some research and find a provider that suits your needs. Many accounting software solutions integrate with ecommerce platforms. These systems can help reconcile and manage your sales, expenses, and inventory.

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Companies often outsource the organization of their finances to independent professionals, then hire accountants for more complex issues and tax filing. While any competent employee can handle bookkeeping, accounting is typically handled by a licensed professional. It also includes more advanced tasks such as the preparation of yearly statements, required quarterly reporting and tax materials. Unless you have significant experience, a lot of the important nuances of ecommerce bookkeeping may be lost in your books. It’s important to make sure any bookkeeping solution you choose, has the ecommerce knowledge you need to get the most from your financials. If you have read until here, you should have a pretty clear understanding of why using an ecommerce bookkeeping specialist is important in maintaining accuracy of your books.

These bookkeeping practices should help them with regulatory compliance, identify cost-saving opportunities, avoid common bookkeeping mistakes, and reduce financial risks. It’s important to note that not all lenders and investors require certified or audited financial statements. However, it’s still a good idea to ask an accountant to review your bookkeeper’s financial statements for accuracy and completeness prior to submitting them to a third party for consideration. And even if you’re not looking for funding, consider asking an accountant to review your financial statements at least once a year.

File sales tax

Properly managing your business’s finances according to accounting standards is good not only for profits but also for staying in compliance come tax time. Here are some of the major benefits of using accounting software for e-commerce. We found that FreshBooks outclasses competitors in its invoicing capabilities.

• The presence of your business in a state is known as nexus, and you must collect sales tax for every nexus you have.
• And even if you’re not looking for funding, consider asking an accountant to review your financial statements at least once a year.
• You can calculate COGS by adding the cost of your inventory to the purchases made during a specific time period.
• We’ll also share some best practices and tips to help you avoid common pitfalls and run your business with confidence.
• Our top selections are determined by factors that are important to e-commerce businesses, including third-party integrations, price, invoicing capabilities and inventory management.
• Moreover, stockouts can damage businesses’ relationships with their customers.

Receipts are simply documents that list the items or services purchased and delivered, showing how much the customer paid. When you have a clear picture what your money is doing, you can get a better handle on your business spending. Whether you do bookkeeping yourself or decide to hire a certified bookkeeper, understanding how money flows through your business is vital. Add the sales tax rates for your state, county and city, then multiply the total percentage by your sales amount to get your sales tax amount. Under the federal Protecting Americans from Tax Hikes (PATH) Act, the IRS cannot issue Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) refunds before mid-February. Should show an updated status by February 17 for most early EITC/ACTC filers.

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Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation. Get free ecommerce tips, ecommerce bookkeeping inspiration, and resources delivered directly to your inbox. Staying on top of it gives you a transparent view of how much stock you have, how much stock you need, and any emerging sales trends.

To make sure you’re paying all your required taxes to the right governmental entities, it’s best to consult with a tax professional or use tax filing software. Either of these methods will help you with this headache of a task and make sure you do it the right way. These items identify what’s coming into your company and what’s going out, plus it puts everything in an orderly format. It’s important to get someone who understands these specific challenges and has the knowledge, skills, resources, and tools to help guide you on this cumbersome, but fruitful path. You need someone who can identify problems long before they become problems. A discussion of these challenges is not intended to be a deterrent to e-commerce.

For brick & mortar businesses, the gross margin is essentially revenue minus cost of goods sold, better known as COGS. Adding ecommerce integrations is only one piece of the puzzle in making your books ecommerce-friendly. There are many real differences between regular bookkeeping and ecommerce bookkeeping that also need to be taken into account (yup, pun intended). For example, if a customer orders $98, your e-commerce platform will collect $105.84 — $98 for the item(s) plus $7.84 in sales tax (8% of the purchase). The first way of accounting for differences between shipping income and spending is to keep everything in one COGS Shipping Expense account.