We have prepared a comprehensive guide to help business owners understand the nuances of e-commerce accounting. While accounting is not interesting to many business owners, it remains a crucial component of e-commerce businesses. A lot of small business owners and e-commerce startup founders shoulder the accounting. For starters, bookkeeping is the practice of recording and tracking your business’s finances. In its simplest form, bookkeeping involves the recording of business transactions and documents on a day-to-day basis.

• As an ecommerce entrepreneur, you’re going to come face-to-face with payroll duties and payroll taxes.
• This blog discusses how to ensure your eCommerce business’s success with effective bookkeeping and accounting procedures.
• Because there is so much complexity, we recommend using sales tax software like TaxJar or Avalara which can streamline this process.
• 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.
• It covers everything from assets and liabilities to your equity, revenue, and expenses.

You should review all these items to determine the overall financial health of your company. These standards and procedures are instituted by the Financial Accounting Standards Board (FASB). Switch to an all-in-one accounting service that supports you at every stage of growth. A Chief Financial Officer (CFO) typically handles these responsibilities in large companies, but many accounting firms also offer virtual CFO services as part of their offerings.

Use E-commerce Accounting Software Like Vencru

It was worth $500, and they’ll pay you in 30 days, i.e., by September 19, 2023. Regular bookkeeping can alert businesses to potential fraud, discrepancies, or financial anomalies early on, allowing for timely corrective actions. Regular and accurate financial reporting increases the confidence of stakeholders, including investors, creditors, suppliers, and employees. Accurate bookkeeping ensures that businesses are compliant with tax regulations.

Always fix a threshold level for the minimum and maximum inventory that your business can handle. While making inventory decisions, always account for the financial health of your business. From the day you first open your online store to your first sale to reaching your first major financial goal, it’s a rollercoaster that never puts on the brakes. In all that excitement, it can be easy to forget to manage your income and expenses. If you lose track of them, you may lose your foothold on the ladder to greatness.

Step 9: Stay On Top of Your Finances

E-commerce businesses can be seasonal, meaning cash flow will fluctuate. Maybe the holidays will bring in more revenue, or maybe it’s the summertime that does best. Either way, cash flow planning will help you manage the months when cash flow is lower. We’re not entirely sure if this is true, but money is crucial for the long-term success of your business. Ensuring that you have proper and effective bookkeeping and accounting is critical for the success and growth of your e-commerce company—no matter your business size or industry.

You can use your record sheets to know where the highest profit comes from and how they are coming in. This way, you can develop ideas like building an online store, giving away coupons, and promoting your eCommerce business on social media. Inventory tracking is a vital component of e-commerce business accounting.

Solid bookkeeping will help you sell the business

As an example, you might have to sell 200 units of your inventory to pay for the warehousing fee for the month. To know how your business is doing financially, you have to keep accurate records. It enables you to report actual and precise figures when tax time rolls around. For accounting purposes, this debt only matters once the money leaves your account. When you think of accounting, your mind probably goes straight to taxes, but that’s only part of what ecommerce business accounting entails. An accountant can provide valuable insights, ensure compliance with tax regulations, and help with financial planning, which may be particularly important for growing e-commerce ventures.

It’s usually governed by your online store’s return and refund policy, and can be handled in different ways. Managing your COGS is important for the financial health of your online business in the long run. It lets you know how much gross profit you can earn from each sale, as well as the budget you can stretch ecommerce bookkeeping without harming your net profit. Accrual basis accounting requires a business to record its revenues and expenses when they are earned or incurred respectively. To illustrate the differences between these two activities, below are some examples of tasks involved in e-commerce accounting and bookkeeping.