Ecommerce Accounting Guide for Business Owners 2023

Bookkeeping is broadly defined as the recording of financial transactions for a business. It’s a key component of the accounting process and can be done as frequently as daily, weekly or monthly. Accurate bookkeeping is vital to filing tax returns and having the financial insights to make sound business decisions. ecommerce bookkeeping Double-entry bookkeeping, used by many businesses, records each transaction twice, once for the source of money and the other for the money’s destination. These entries are called debits and credits, and they must balance. This provides more accuracy and insight into the business’s financial position.

In Xero, for example, you can group together data by transaction, project, and department. You do this by clicking on their respective tabs, and then sub-tabs. Learning to properly manage your business’s finances could help ensure your business thrives and remains in that coveted 10% of successful businesses.

Gross profit

For a full breakdown of the difference between the two you can read our guide to cash basis vs. accrual accounting for small business owners. When you think of accounting, your mind probably goes straight to taxes, but that’s only part of what ecommerce business accounting entails. Businesses that document their processes grow faster and make more profit. Download our free checklist to get all of the essential ecommerce bookkeeping processes you need every week, month, quarter, and year. On the surface, accrual accounting seems more confusing than cash-basis accounting.

Bookkeepers track all costs and income to help a company make informed financial decisions. Effective inventory management is critical for ecommerce businesses. You need to know what’s selling, what isn’t, and what you have in stock. Check if your accounting software includes inventory tracking or consider using a dedicated inventory management tool to streamline the process. An ecommerce business owner has to consider how to track their financial transactions, merchant fees, and more.

How do you manage your eCommerce bookkkeeping?

When you were daydreaming about building your ecommerce empire, tracking your income and expenses likely wasn’t part of the fantasy. If that’s the case, don’t worry — there are plenty of bookkeeping solutions to match your preferences. Tax management for e-commerce stores can be difficult, but it’s much easier if you have accounting software to manage the process. However,  you must still track and pay state and local taxes, as well as make tax-related filings, such as sending Form 1099 to contractors. We combine ecommerce-specialized accountants and bookkeepers with processes and technology to provide a solution that matures and advances your business.

These standards and procedures are instituted by the Financial Accounting Standards Board (FASB). We make sure your reports are easy to read and include key takeaways from the month specifically for your business. Given all of the moving parts of an eCommerce business, it can be difficult to understand the eCommerce bookkeeping numbers even once they’ve been organized. Connect TikTok Shop to Xero and simplify your accounting processes. However, there’s always the possibility of mistakes being made when you take on too much yourself. As your business grows, don’t be afraid to outsource some tasks to professionals.

Ecommerce Bookkeeping: The Small Business Guide

The importance of bookkeeping for ecommerce isn’t only apparent when it’s tax time but year-round. Here are the most important reasons why bookkeeping is essential for ecommerce entrepreneurs. The margin between your cost of goods sold and net profit should be stable as well as predictable. And always remember to record your cost of goods sold when you sell each piece of inventory. Ecommerce accounting and bookkeeping software can help with these accounting duties and make your life easier and more organized overall. When you have the right system in place for tracking payroll and payroll taxes, you can keep documents up-to-date.

Accountants typically have at least a bachelor’s degree in accounting, and many go on to become certified public accountants (CPAs) or certified management accountants (CMAs). Bookkeepers might also have degrees in accounting, but most have either technical certifications or on-the-job experience. If your bookkeeper bills your customers or pays your vendors and employees, make sure you have proper checks and balances in place to mitigate the possibility of fraud. Our partners cannot pay us to guarantee favorable reviews of their products or services. We believe everyone should be able to make financial decisions with confidence.

Is ecommerce accounting the same for all sales channels?

The financial statements produced by recording and categorizing your transactions let you take care of your tax obligations, make predictions, and plan for future growth. Accrual accounting is more suitable for businesses dealing with inventory. This method requires you to record revenue from sales when they occur, not when the cash is received. Accrual accounting helps you understand the long-term impact of inventory purchases and sales on your financial performance. Instead, you’ll look at the overall business’s financial health and financial reports. Proper ecommerce accounting tells you whether you can afford these types of choices.

• This includes metrics like cash flow and gross profits, balance sheets, and profit and loss (P&L) statements.
• Single-entry bookkeeping records each transaction just once, either as income or expense.
• As soon as possible, open a business account and split your business and personal finances.
• An e commerce business faces unique challenges that a traditional business will not face.
• Although accounts receivable, accounts payable and payroll do impact your books, some of these tasks can be managed by a person in your company other than your bookkeeper.
• If a business doesn’t have sufficient money in their bank account, there’s going to be problems.