Ecommerce Accounting 101 + Best Practices

Your company’s financial statements are the ultimate result of your e-commerce accounting efforts. You’ll need them to get business financing, inform your business decisions, and file an accurate tax return. Speaking of sales taxes, managing them is another significant accounting task for e-commerce businesses.

• They want to live in the bank account and track those transactions, calling it good (the poor dears!).
• Just make sure that if you’re allocating more money towards marketing your products, the sales generated must exceed the amount spent on marketing.
• It also helps you allocate money for business operations related to revenue generation.
• Accrual accounting gives you a clearer picture of your cost of goods sold each month.
• Knowing your company’s equity will help you make long-term decisions for your business.

When you use accounting and bookkeeping together, you can keep track of your financial figures. New business owners might not be familiar with the business tax deductions they can take on their business tax return. Unlike personal tax deductions, businesses can deduct most ordinary and necessary business expenses. When you subtract these two accounts from your total sales number, you get net sales. Net sales reflect your total sales revenue after subtracting returns, discounts, and allowances, which are discounts made for defective merchandise that customers keep. E-commerce order fulfillment should be one of the first processes you perfect.

What is the role of an accountant for eCommerce businesses?

Your financial records and eventual tax liabilities will vary significantly depending on your choice. With a chart of accounts, you will be able to see all the money coming in and out of business, effectively manage your inventory and maximize the selling potential of your business. Navigating the U.S. sales tax system can be confusing for both new and How to Do Accounting for Your E-Commerce Store veteran eCommerce sellers. While there is no national sales tax, 45 out of 50 states all have state sales taxes. As an eCommerce business, you are required to register and collect sales tax anywhere you have nexus. For example, you can see just how successful each sales channel is, their profit margins on individual products, and their top sellers.

If you expect to have hundreds or thousands of transactions per month, you’re going to want accounting software like QuickBooks Online, Xero, or FreshBooks. Businesses with fewer transactions can get away with using an Excel spreadsheet, but a high-transaction business won’t be able to keep up with manual entries. Accounts receivable includes any money that is due to arrive in your bank account. For example, if you send out an invoice, that goes in accounts receivable until the customer actually pays you.

When it goes right: What a financially savvy eCommerce business looks like

The information collected and stored can then be turned into key financial statements, like profit and loss statements and balance sheets. You didn’t start https://quickbooks-payroll.org/ your ecommerce business so you could juggle accounts and balance books. You started it to sell products, serve customers, and make money while you’re at it.

Fully Accountable is an outsourced accounting firm specializing in eCommerce and digital businesses. Chris has served as a CPA, CFO and has over 14 years of experience in the accounting and finance industry. Chris has dedicated his career towards helping entrepreneurs and high-level business owners achieve greater profitability through specialized outsource accounting functions. Tracking the correct COGS numbers is important for your business as these figures play a critical role in accurate financial reporting.

Monitor cash flow

Nick Gallo is a Certified Public Accountant and content marketer for the financial industry. He has been an auditor of international companies and a tax strategist for real estate investors. He now writes articles on personal and corporate finance, accounting and tax matters, and entrepreneurship. If you’re doing business as a sole proprietor, you can get away with using a separate personal checking account for your business activities. These are usually easier to get than business accounts and have lower fees that are easier to waive. Economic nexus is a term that refers to a certain level of involvement between a business and a state.

• Zoho Books offers a single, secure location for managing your bookkeeping tasks.
• If you sell $10,000 worth of products in a week and your COGS for those products is $3000, your margins would be 70%.
• You can also customize your dashboard to review all your ecommerce metrics at once.
• Businesses need both types of expertise to manage the finances of their business correctly.
• But as your business grows, you’ll eventually also need to look at some of the many accounting firms that understand the nuances of ecommerce businesses.

You may even have to pay rush fees in order to meet your tax deadlines. In this post, we’re sharing a detailed guide to eCommerce accounting. While there’s value in getting expert help and advice, make sure you have a solid understanding of your numbers, no matter who you have managing your finances. 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. It also allows you to predict when you will need to restock, order supplies, and adjust your pricing strategy, if necessary.

How to handle sales tax in ecommerce bookkeeping

You should avoid using your business account for personal expenses but using your personal finances for business expenses classifies them as “out-of-pocket” expenses. Stay within reasonable grounds on your “out of pocket” expenses or you risk regulatory questioning. Because we are 100% remote, we understand how to serve our ecommerce clients. We speak to our clients’ unique challenges by providing direct, timely answers to questions and concerns. We do this by via the best technology to help improve their experience.

But e-commerce accounting is more than just tracking accounts payable and recording sales and expenses. It’s also understanding how your business operates, what drives your profitability, and how to plan for the future. Ecommerce accounting software automates most of the essential accounting tasks and simplifies your life.