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Accounting for Dropshipping: What You Need to Know

Dropshipping is a fulfilment method where a store purchases items from a third-party supplier instead of keeping them in stock. This means that sellers do not have to handle or come into contact with the products directly.

What makes this all the more appealing is that plenty of apps are now available to automate the operations. The most helpful tools, in particular, are accounting software and apps. Dropshipping tends to come with more invoices and documents than a typical e-commerce business, so it is essential to be more careful with your accounting.

Here is what you need to know about book management for dropshipping:

Professional Help

What is the difference between a bookkeeper and an accountant? Bookkeeping is a part of accounting. A bookkeeper regularly records and organises financial transactions. Meanwhile, an accountant analyses those records and provides valuable financial advice.

If you’ve just started your business, you can probably do your bookkeeping for now. However, when your business grows, it might not be as manageable. Although there are many available apps and software for this purpose, an accountant will be invaluable when your business takes off.

Mountains of Invoices

When you are running a typical e-commerce business, you only get one invoice. With dropshipping, it’s not the same. Your supplier will send you an invoice for every sales order made. This is what makes managing books for dropshipping more complicated.

Overselling of Goods

It’s all too easy to fall into the trap of overselling when you’re unaware of the product inventory. Running a dropshipping business has its advantages and disadvantages. On the one hand, you don’t have to handle any of the products yourself. But on the other hand, it makes keeping up with inventory more challenging.

You’ll have to make sure your supplier is reliable and transparent when it comes to their inventory. This requires a lot of communication from your end. Make sure to be persistent and acquire clear and accurate information on the products. You should also discuss liability when overselling issues arise.

Paying Taxes

There are two types of taxes you’ll need to pay when dropshipping—income taxes and goods and services taxes (GST). Income taxes for your business will work mostly the same way they would if you had a regular job. When you start earning from dropshipping, you’ll have to report income and pay tax.

Depending on where you live, you’ll have to check the business income and taxes guidelines with the Australian Taxation Office and then start paying to your local government.

Next, for GST, the guidelines are pretty straightforward. If your revenue is under AUD 75,000 in 12 months, there’s no need to register and collect GST. However, any amount over that, regardless of whether you’re an Australian resident or not, you must register and collect 10 per cent.

The Bottom Line

Although dropshipping has become popular among ecommerce businesses, there are still some unique considerations. For the most part, especially when you’re still starting, you can skip hiring professional help. However, as your business grows, it’s crucial to get guidance and expert advice to ensure that everything runs smoothly.

To find success in your dropshipping business, you must not rely solely on apps and software. The Ecommerce Accountant is an online accounting firm that aims to help clients minimise tax and increase profit. We hope to help you achieve your goals. For more information, contact us today and let us know how we can help you!

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