Understanding ECommerce Accounting and Its Importance

Your long-term success in the eCommerce industry will depend heavily on managing your finances. This is why it is crucial to get an eCommerce accountant for your business. You never know what may happen if your eCommerce bookkeeping and accounting system aren't in order.


Bookkeeping and accounting are essential for eCommerce enterprises for various reasons, including the ambiguity of tax regulations and the potential for rapid expansion that the internet provides.


ECommerce Bookkeeping vs Accounting


Your financial duties expand along with your eCommerce business. As a result, you have a lot on your plate as a business owner. Sales, refunds, supplier payments, banking fees, and every other financial aspect of your company become more complex as it expands.


Bookkeeping is no longer about doing routine chores. It comprises the following objectives:


  • Categorisation of transactions

  • Invoicing

  • Reconciliation of accounts

  • Financial statements

  • Payroll administration

  • Management of payables and receivables


As an eCommerce company grows, accounting gets increasingly challenging. Due to the internet's new and continuously changing business environment, assessing financial data and projecting for the future is increasingly complex.


The following are examples of eCommerce accounting tasks:


  • Entry preparation and revision

  • Audits of financial data

  • Planning and reporting on taxes

  • Reporting and financial reporting

  • Risk assessment and financial forecasting

  • Creating financial statements


Types of Accounting for eCommerce Businesses


For eCommerce enterprises, there are two forms of accounting:


Cash Basis Accounting for Simplicity


Cash basis accounting keeps track of transactions entering or leaving your account as an expense. The transactional information maintained across your payment methods and accounts are mirrored in your books.


Because of its simplicity, cash basis accounting works well for eCommerce enterprises when they first start. You may examine how much cash you have on hand at any one time by reporting money movements depending on your accounts.


You also don't have to pay income taxes on the money you haven't received when using cash basis accounting.


The following firms benefit most from this bookkeeping method:


  • Smaller online retailers

  • Maker companies

  • On-demand product companies

  • Dropshipping businesses


On the other hand, cash-basis accounting is not as effective for larger or developing organisations. It may not suit such businesses since it does not account for future receivables or payables.


Accrual Method for Realistic Financial Projections


Accrual accounting captures transactions as they happen, rather than when money enters or exits an account. This is how most financial institutions work.


At first appearance, accrual accounting might be perplexing. Accrual accounting delivers a more realistic portrayal of your monthly business income and enables more accurate financial predictions when you account for current and future commitments.


The disadvantage of this strategy is that it focuses on how much money you transfer rather than how much money you have. Using accrual accounting to include future income and costs runs the risk of making your finances appear more promising than they are, requiring you to keep a closer eye on them.


Only organisations with an average annual growth receipt of $5 million or less can use cash basis accounting. If you want to grow your firm, the accrual technique is the way to go.


The Importance of Bookkeeping and Accounting in eCommerce


Regardless of where you sell, you'll need a reliable accounting system. You may sell on Etsy, Amazon, or Shopify but fall out of business without proper accounting. Having a solid eCommerce accounting system in place from the beginning has the following advantages:


  • Stabilising your business

  • Forecasting your finances

  • Ensuring tax compliance


Conclusion


ECommerce business owners should make bookkeeping and accounting an integral part of their business model. By keeping your accounting system up-to-date and in sync with the latest trends, you'll be able to pinpoint trouble areas and work towards your financial goals.


Are you looking for an eCommerce accountant in Australia? The ECommerce Accountant has passionate and innovative accountants to bring clarity to your business figures. Give us a call to learn more!


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