What is e-commerce accounting?

Accounting and bookkeeping are critical to establishing sound foundations for any organization, regardless of size or sector. You can only reasonably understand the business’s finances or where it stands in terms of tax liability if you have healthy and precise bookkeeping and accounting practices.

E-commerce accounting is recording, arranging, and managing all financial data and transactions related to an e-commerce company’s operations. Consider it a subclass of small business accounting primarily designed to meet the needs of an e-commerce supplier. Your finances will become more sophisticated as your online firm grows. Sales, returns, supplier payments, banking fees — all money movements must be correctly classified, analyzed, and reported to the tax authorities.

With suitable accounting processes, dealing with all financial data may be manageable. The most challenging aspect of e-commerce accounting is that most activity does not occur in the bank account. It occurs in the sales channels and payment processors, and what reaches the bank account is merely a summary of what happens there. 

The average accountant or bookkeeper needs to be made aware of this. They want to live in the bank account, track the transactions, and call it a day. The mistakes caused by this strategy might have a significant impact on the success of your organization. 

Is eCommerce Accounting Distinct From Traditional Accounting?

The fundamental bookkeeping and accounting principles apply to both e-commerce and non-e-commerce organizations. Things are more complicated for online firms. For example, e-commerce enterprises often use one of two accounting approaches: cash basis accounting or the accrual method. We go over both of them in greater depth below so you can decide which one best suits your needs.

Why Is Bookkeeping Important For Your Business? 

You’ll need a robust financial management system if you sell things on Shopify, BigCommerce, Etsy, or Amazon. Here are some primary advantages of establishing excellent bookkeeping systems from the start.  

• Bookkeeping will assist you in developing a financially strong and dependable business model.

• Bookkeeping will assist you in forecasting your business. 

• A competent bookkeeping system helps ensure that your tax returns are prepared.

The primary reason that bookkeeping and accounting are crucial for e-commerce firms is that they give a solid and dependable financial information and records system. Even before the business begins trading, bookkeeping and accounting are critical to maintaining solid control over things like e-commerce setup expenses and initial investment.

What Exactly Is eCommerce Accounting?

• Organization

If your eCommerce bookkeeping and accounting are efficient, you can only find financial paperwork and reports. You can easily access your financial records thanks to a well-maintained accounting system that keeps track of everything. An organized strategy reduces the stress that comes with pesky foes like tax audits and payroll. When you need something, everything is precisely where it should be. 

• Tax management

Tax administration can be complex, and filing or interpreting tax code errors can substantially impact business owners. As a result, tax management (including tax planning and preparation) is a core service many accounting companies provide. 

Keeping track of and paying all required local and state taxes, computing and reporting quarterly estimated taxes, and completing year-end returns, and delivering 1099s to contract workers are all part of the e-commerce tax administration.

• Allocation of Strategic Resources 

Another evident indicator of good eCommerce accounting practices is well-researched resource allocation. Using a scalable outsourced accounting firm, for example, ensures you do not overpay for services you do not require. 

Most bookkeeping and accounting procedures do not necessitate annual wages. Scalable outsourced accounting businesses enable you to access bookkeeping and accounting services as needed. 

• Bookkeeping

Bookkeeping accuracy is a must for all business planning and operations. This includes recording and categorizing income and expenses, managing inventories, and evaluating balance sheets.

It also entails tracking client returns, which can improve customer loyalty while also causing a bookkeeping problem. When a return is not correctly tracked, it can throw off your sales, inventory, spending, forecasting, and sales tax records all at once. 

eCommerce entrepreneurs wear multiple hats, balancing all the moving parts required to run a successful e-commerce firm. It makes sense to save time and money by hiring an e-commerce accountant to handle your books.