In the world of e-commerce business, Shopify is one of the leading digital platforms that many online entrepreneurs have utilised. All it takes is to sign up for a plan, set up your online store, start selling, and Shopify will help you do the rest. As with any business, whether an online or a brick-and-mortar store, proper accounting practices are paramount because it helps record and monitor your financial transactions to regulate your business's financial health.
Unfortunately, some Shopify businesses tend to make a few accounting mistakes that can take their online businesses in the wrong direction. In this article, we will share with you four accounting mistakes that are unprofitable:
1. Having little to no accounting at all
As mentioned, both big and small businesses should set proper accounting practices in place. Yet, there are some Shopify sellers that do little to no accounting at all. Understand that the accounting process helps you record all your financial transactions and track all your income and expenses. With this in place, you will be able to check your business's financial status and make sound business decisions. Ultimately, it will help you take control of the financial health of your business.
2. Miscalculating COGS leading to poor inventory
Almost all Shopify sellers keep an inventory of products that include the actual cost of goods sold (COGS). It needs to be calculated correctly and recorded at the right time. Unfortunately, some sellers calculate and record an inaccurate COGS. Keep in mind that this accounting process should be done at the time of the sale so that it won’t lead to poor inventory that can impact your e-commerce business.
3. Having deposits recorded as revenue
It's normal for active Shopify sellers to deal with a high volume of transactions regularly. For this reason, some sellers tend to record revenue only when Shopify deposits the money into their bank account. However, doing so can create two major issues. First, this can violate the matching concept of your accounting – the process by which all your transactions should be recorded in their respective period of occurrence. Second, this can lead to inaccurate revenue and missing data that can reflect poorly on the actual status of your e-commerce business.
4. Miscalculating sales tax
Dealing with taxes, specifically accounting for sales tax, can be such a headache for any business. For this reason, hiring an e-commerce accountant for your Shopify business will be your best bet. If you do not have the knowledge, skills, and expertise to deal with the sales tax laws and to record sales tax on your accounting books, you may end up with high tax liabilities and even possible legal implications.
Although running an e-commerce business can rake in profits on your end, it can also make you lose more money when you perform various accounting mistakes. This is why working with an e-commerce accountant can help ensure proper practices for your Shopify business. They will perform robust accounting, calculate COGS properly, record revenue on time and accurately, and deal with sales tax accordingly. All these will ensure that your Shopify financial is set in place for the good of your e-commerce business.
The Ecommerce Accountant provides e-commerce accounting services to help entrepreneurs reduce tax and increase profit. If you are struggling with your online business, we are here to help. Book your FREE strategy session with one of our e-commerce specialists today!