If you own an eCommerce business, you will need to analyse and assess all the money that enters and exits your company as it expands. The complexity of handling the business finances grows with each transaction. But around 41 per cent of small business owners handle their own bookkeeping. That is a large percentage of growing companies that are reliant on their own skills.
Due to this, we want to help and grow people’s understanding of financial literacy. This article explains clearly and concisely everything that you need to know about eCommerce accounting.
The Difference Between eCommerce Accounting and Bookkeeping
Bookkeeping refers to the processes of recording and monitoring business transactions. This is done for two reasons. The first reason is to make sure that the information remains accurate. The second reason is to make it possible to distribute the money accurately.
Many people believe that bookkeeping and accounting are the same things. However, they are not.
Accounting is a lot more than just keeping track of data. It is usually more focused on the data circulated between the accounting departments. At the same time, accounting is a process used to evaluate the performance of the business.
Choosing the Right Type of Ecommerce Accounting
The first step to helping your eCommerce business thrive is by choosing the right accounting type for your eCommerce business. There are two types of accounting methods to choose from: the cash method and the accrual method.
The Cash Method of Accounting
Obviously, the cash method of accounting is used for businesses that make cash payment transactions. For instance, if you are doing a business that involves a lot of cash and many credit cards, ́it is well suited for you.
This type of accounting makes it easy for you to report the income and the expenses in the period in which they were made. It is a simple method and is helpful for businesses that sell low-priced goods. This is because they do not include such high taxes.
The Accrual Method of Accounting
The accrual method of accounting is used for businesses that are done using checks or credit cards. This type of accounting is also suitable for companies that deal with bills and credits.
Since this method needs you to use several merchandise and inventory, it is best to use it for businesses that sell high-priced goods. This is because they have a lot of taxes.
When you sell high-priced goods, the ́accrual method of accounting is the best choice.
Reporting eCommerce Accounting
As an eCommerce business owner, you will be required to report the income your business makes every month. You will also have to register your payment to the tax authorities every quarter.
You should observe your bank statements. It will state the amount you’ve received in your account. It will make it easier to report your income.
Conclusion
To conclude, accounting plays a significant role in managing your eCommerce business. Keeping track of the money you make and send will allow you to regulate the flow of expenses and accurately report your income to the tax authorities.
This simple article is meant to guide you through the essentials to understand accounting in a better way.
The eCommerce Accountant is your best choice if you need a competent accountant for your online business in Australia. Get in touch with us now for a no-obligation chat about how we can help your business become more profitable!