E-commerce accounting, when done right can make running your business so much easier. Doing it properly can help you get a clearer view of how your business is doing.
But how do you know you are doing e-commerce accounting right? For starters, you should not be committing these five mistakes:
Doing Accounting Manually
If you are an e-commerce business, it's time to say goodbye to paper. All successful e-commerce businesses use accounting software of some sort. It's a great way to get an accurate picture of all the financial transactions you are doing.
These days there are many great options for e-commerce accounting software. The software you choose should be able to handle most of your e-commerce accounting needs if not all.
A few things to look for when choosing software are ease of use, integration with other software, and mobile capabilities. Be sure to check out how much support the software offers too.
Not Automatically Syncing Transactions to Your Accounting Software
The main reason you are using accounting software is to get an accurate picture of the financial transactions you are doing. Therefore, your accounting software should be receiving real-time data from your e-commerce site.
If you are manually entering transactions into your accounting software, you are taking way too much time and increasing your risk of making mistakes. Automatically syncing your e-commerce site with your accounting software is the best way to get an accurate picture of your financial transactions.
To sync your site and accounting software, you will need to install a shopping cart sync tool like Shopify's Smart Sync or BigCommerce's Recurring Order Sync.
If you are using a platform that does not have integrations available, you will need to use a sales and inventory tracker like ProfitWell to track your PPC and SEO expenses. ProfitWell sends the daily or weekly sales and profit data you need to your accounting software as a CSV file.
Failing to Meet International E-Commerce Tax Standards
Here is the problem with e-commerce accounting. A lot of countries have different tax rules. For example, in the United States, you are required to collect state sales tax if you have a physical presence in that state. On the other hand, if you are selling in France, you are required to charge VAT.
Recording sales tax incorrectly can get you in a lot of trouble with your national government. Most countries will fine you for selling products without collecting sales tax.
To make matters worse, the penalties for failing to collect sales tax can be much higher if you are not an approved vendor. (e.g. you are using an incorrect tax code)
Many e-commerce shops choose to outsource e-commerce accounting to a country-specific accounting firm to help them stay compliant with local tax laws or at least an established firm that is well-versed in international tax laws.
Mismatching Account Types
One of the biggest mistakes you can make is not correctly matching your e-commerce account types to the corresponding accounting principles.
For example, if you are using the cash basis of accounting, you will need to adjust your income statement for e-commerce transactions that have not been invoiced.
Then there is the issue of matching the number of units sold to the units in inventory. If this is not done (e.g. stock is not in sync with sales) your balance sheet won't be accurate.
When your accounting account types don't match your accounting principles, your financials will not be correct.
Inaccurate E-Commerce Inventory Valuation
You probably have heard the term "money moving like water." E-commerce stores are money-making machines. And your money-making machine should not be taken lightly.
Whether you are using an inventory management solution like Printful or using a spreadsheet, you need to be tracking your inventory accurately.
One of the most common e-commerce accounting mistakes is overvaluing inventory. This is usually done to pump up perceived profits. You don't want to do this because it is simply a cover-up to avoid showing a loss.
Another common mistake is failing to track inventory. You will end up not having an accurate picture of your financial health.
E-commerce businesses need to have an accurate inventory count so you will need to make sure your accounting software is set up to track inventory automatically.
Conclusion
Hopefully by now you understand that these five e-commerce accounting mistakes are very common.
There are many factors that influence how you do your e-commerce accounting. The more financial transactions you do, the more e-commerce accounting mistakes you are likely to make. That is why it is important that you hire an experienced accountant for e-commerce business.
The ECommerce Accountant offers you services for accounting for e-commerce businesses in Australia like yours. Call us at 075504199 to book a free strategy session today!