Ecommerce accounting is a highly specialized type of accounting because it covers many different areas. While accounting for traditional businesses is straightforward, accounting for ecommerce is complex and requires intimate knowledge of various business processes.
Ecommerce Accounting vs. Bookkeeping
Bookkeeping involves activities like posting transactions, collecting receipts and so on. These activities are straightforward and can be performed by anyone with basic accounting knowledge. Ecommerce accounting is a lot more complex and is better performed by a specialist who has a deep understanding of ecommerce.
Basic Types of Accounting
Ecommerce accounting basically deals with two types of activities. The following are some basic types of accounting:
1. Cash Accounting
This type of accounting is basically used for businesses that receive their revenue in cash. Instead, these businesses do not transfer money between their bank accounts and use cash for accounting.
2. Accrual Accounting
When a business is involved in selling a good and/or service, it receives the money from the source, but the transaction is never in cash. The transaction consists of the transfer of money between banks, and the parties involved use credit cards to pay. This type of transaction is known as accrual accounting, as the revenue is accrued against an order.
What Sets Ecommerce Accounting Apart
Several unique nuances set ecommerce accounting apart from other accounting types, such as:
Transaction Data Analysis
Ecommerce businesses record thousands of transactions every day, and the data analysis involved in this is complex and requires specialised software. For instance, many ecommerce businesses offer the option to pay for the product in different ways, such as cash on delivery or card on delivery. These two options require other payment methods, so the ecommerce business may end up receiving money in different accounts for different orders.
This type of data analysis is complex and requires knowledge of ecommerce business processes.
Inventory & Cost of Goods Sold (COGs)
When a business sells products, it needs to keep track of the inventory of each product and the cost of each product. For ecommerce businesses, this is complicated and not a simple process:
The way each product is priced is different.
There may be a different price for each channel.
Even for the same product, the price and inventory may differ for each channel.
The business may need to account for the stock of each of their products, and for the inventory of each channel.
Common Challenges to Ecommerce Accounting
What are the unique challenges of ecommerce accounting? Here are some of them:
Inventory management is one of the biggest challenges of ecommerce businesses. This is because while traditional businesses typically purchase inventory in bulk and sell it in smaller quantities to the final customer, ecommerce businesses sell the same product many times. This means that the business has to keep track of thousands of transactions, each with a different price and quantity.
Sales Tax Liability
There is a tax on products and services known as sales tax in most countries. Ecommerce businesses have to keep track of each tax for each product sold. This involves a lot of record-keeping and data analysis.
Oftentimes, the tax on a particular sale is different in different channels, so the business needs to keep track of the tax liability for each channel.
The number of transactions processed by an ecommerce business is immense. This means that the business must have the infrastructure to manage the number of transactions that it handles every day.
Handle Ecommerce Accounting with Ease
Ecommerce is growing rapidly every year. This means that there is a huge need for ecommerce accountants who can keep track of the finances of an ecommerce business.
The process of ecommerce accounting is complex and involves a lot of data analysis and accounting for different types of transactions. Due to the massive number of transactions that a business must handle, the business must employ the services of a highly qualified ecommerce accountant who is skilled in transaction data analysis.
Are you in need of an accountant for ecommerce? The Ecommerce Accountant is the business advisor you need. Let us help you with your finances. Get in touch with us today!