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Differences of Ecommerce Accounting vs. Traditional Practices

Ecommerce has revolutionised the way businesses sell products and services. With the rise of online marketplaces and shopping platforms, ecommerce has become famous for companies to reach a wider audience and increase sales. However, ecommerce accounting is different from traditional accounting practices.


In this article, we will explore what makes ecommerce accounting so unique.


What Makes ECommerce Accounting Different?


Ecommerce accounting is a specialised form of accounting tailored to online businesses' unique needs. It’s a much different process than traditional accounting and offers many amazing benefits to meet your business accounting needs. Here are just a few reasons why ecommerce accounting is special:


Sales Tax Compliance


In Australia, sales tax (also known as GST) is a consumption tax applied to the sale of goods and services. All businesses must register for GST and collect it on taxable sales. This includes businesses selling online, as well as those with physical stores.


When it comes to ecommerce accounting and taxation, there are several key areas that businesses should be aware of. First, businesses must accurately calculate the GST they owe on each sale. They must then collect and remit the GST to the Australian Taxation Office (ATO) monthly or quarterly.


Businesses must also keep accurate records of their sales and sales tax collections. This includes keeping track of all invoices and maintaining detailed records of any refunds or adjustments made. It is also important to maintain records of all sales tax returns filed and any associated payments.


Payment Processing Fees


Another unique aspect of ecommerce accounting is payment processing fees. Ecommerce businesses must pay fees to payment processors such as PayPal, Stripe, or Square for each transaction made on their website. These fees can add up quickly and eat into a business's profits.


Ecommerce businesses must also track these fees separately in their accounting records to calculate their net income accurately. This can be time-consuming, especially for companies with a high volume of transactions.


Inventory Management


Ecommerce businesses must also manage their inventory differently than traditional businesses. With a physical storefront, companies can easily see their inventory levels and restock as needed. However, with ecommerce, companies must rely on their online inventory management systems to track their inventory levels.


Businesses must also consider the cost of shipping and handling when managing their inventory. Shipping costs can vary depending on the weight and size of the product, the shipping destination, and the shipping method. Businesses must factor in these costs when setting prices and managing inventory levels.


Fraud Prevention


With the ability to make purchases online using credit cards, fraudsters can easily make fraudulent purchases and cause financial harm to a business. Ecommerce businesses must have robust fraud prevention systems to protect themselves and their customers.


Fraud prevention can include two-factor authentication, address verification, and payment gateway security. Ecommerce businesses must also monitor their transactions regularly to detect any suspicious activity and take action to prevent further harm.


Returns and Refunds


Ecommerce businesses must also handle returns and refunds differently than traditional businesses. With a physical storefront, customers can quickly return products to the store for a refund or exchange. However, with ecommerce accounting firm, companies must have a clear policy for handling returns and refunds.


Moreover, ecommerce businesses must consider factors such as shipping costs, restocking fees, and the condition of the returned product when processing returns and refunds. They must also keep detailed records of these transactions in their accounting records to accurately reflect their financial position.


Conclusion


Ecommerce accounting is different from traditional accounting practices. Ecommerce businesses must navigate sales tax compliance, payment processing fees, inventory management, fraud prevention, and returns and refunds. By understanding these unique aspects of ecommerce accounting, businesses can better manage their finances and make informed decisions to grow their businesses.


The ECommerce Accountant are top business advisors for online stores and influencers. If you’re looking for an ecommerce accounting firm to help you grow your business, we’re here to help! Book a FREE strategy session now!


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