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Basics to E-commerce Accounting—Things to Know

Accounting is an essential part of any successful e-commerce business. Keeping accurate financial records is key to understanding your business's finances, helping you make informed decisions and grow your business.


For e-commerce businesses, accounting can seem overwhelming and complicated. However, there are many tools and resources available to make it easier. This guide will discuss the basics of e-commerce accounting and how to get started with an accountant for an e-commerce business.


Business's EIN


You must ask the IRS for an Employer Identification Number (EIN) if you run a business or partnership. You must use a unique 9-digit identifier to identify your company on all your tax filings. You can apply for it online and get an email immediately. Sole proprietors can achieve the same result using their Social Security Number (SSN).


Commercial Bank Account


The first accounting golden rule is maintaining financial separation between personal and company affairs. Set up a separate business checking account for your online store. Make business versions of well-known payment applications (e.g., PayPal). Be careful not to use any funds from your business account for personal expenses (unless these qualify as deductible).


On the other hand, you can pay for business expenses out of your account. You can then write them off as "out-of-pocket" costs. Once more, this should be viewed as a reasonable business expense. You could face a regulatory probe if you don't.


Financial Software


Using accounting software and online services can help you save a ton of time on activities like tracking expenses, preparing reports, and other bookkeeping duties. Thus, they are employed by 50% of small enterprises.


The standard accounting software for small e-commerce businesses includes FreshBooks, QuickBooks Online, Xero, Wave, Kashoo, and Sage. Your e-commerce accountant should be proficient in these tools.


Top Accounting Tasks for an E-Commerce Accountant


Let's look at the main accounting activities you must complete each week or each month now that you have all the essential tools:


  • Assemble each transaction.

  • Keep your tax filings up to date.

  • Keep an eye on the company's budget.

  • Understand the distinction between chargebacks and refunds.

  • Maintain accurate records.


You may understand your cash flow and prepare for tax season by being diligent with each.

By category, all Transactions are arranged.


The fundamental method of e-commerce bookkeeping is transaction categorisation. You must identify each transaction on your cash flow statement as an expense or an income. Most accounting software will automatically categorise the transactions for you, so all you need to do is check them and add different categories (e.g., salary, marketing, returns, etc.).


Keep the Budget for Your Company Up-to-Date


A business budget comprises a detailed breakdown of all your costs and other financial obligations compared to your regular income. The sum informs you of the amount required to break even or turn a profit.


Your budget should support the following:


  • Keep an eye on the trends in your cash flow.

  • Keep track of all regular and unforeseen expenses.

  • Recognise when to indulge and when to exercise self-control.

  • Save some money aside for unforeseen expenses (and taxes).


Examine Your Cash Flow


You must understand how much, when, and when your money leaves your account each month to create an adequate budget. Most of your spending will be recurring, so keep track of them first. Keep track of your spending on:

  • Purchasing stock.

  • Facilitating payments to vendors.

  • Managing payroll and outside contractors.

  • Handling and packaging.

  • Shipping & postage.

  • Charges for handling payments.


Then take into consideration unforeseen one-time costs. Your budget baseline—the total amount you will receive—determines your monthly break-even point.


Your revenues may fluctuate since e-commerce sales volumes are subject to variations due to price adjustments, movements in demand, seasonality, and other market factors. As a result, you can have months of poor cash flow or revenue that is below expenses.


Conclusion


E-commerce accounting is a fundamental part of managing a successful online business. It ensures that business owners know their financial situation and can make informed decisions to help their business grow. Proper accounting practices help track sales, expenses, and profits, allowing business owners to identify areas where they can improve their operations or capitalise on opportunities to expand their business.


The ECommerce Accountant are the top business advisors for online stores & influencers. Contact us if you need an accountant for your e-commerce business!

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