Tips For E-Commerce Accounting

Anyone who has ever run an online store knows that accounting can be a challenge. It can be hard to keep track of everything between sales taxes, inventory tracking, and all the other little details. If you're not careful, you could easily end up with a nasty surprise when tax time comes around. But don't worry - with these tips, you'll be able to handle your e-commerce accounting like a pro!

You should also create invoices and track payments received and paid out. This will help you stay on top of your finances and ensure that your business makes a profit. Finally, consult with an accountant or financial advisor to get more specific advice about e-commerce accounting. You can rest assured that your online store is running smoothly financially by following these tips.

This is a great time to be getting into this industry, as it is booming and growing more each year. However, as with any business venture, there are certain things you need to do to make sure your venture is successful. One of those things is accounting for your e-commerce business.

If you run an online store, you need to be aware of the ins and outs of e-commerce accounting. There are a few key things to keep in mind when it comes to tracking your sales and expenses, and if you're not careful, you could end up with a big mess on your hands.

By following these tips, you'll be able to keep your business finances in check and avoid any nasty surprises down the line. So what are you waiting for? Read on for our top tips!

Let's get started!

What Is the Difference Between Ecommerce Accounting and Regular Bookkeeping?

Let's get down to the fundamentals and review the people that work in the accounting sector.

The most fundamental aspect of accounting is bookkeeping, which is the discipline of keeping an orderly record of financial papers and transactions. The purpose of this activity is to analyse and organise the current state of your financial situation.

Key bookkeeping duties include:

• The classification of transactions
• Invoicing.
• Reconciliation of the accounts
• Preparation of the balance sheets.
• Payroll management.
• Management of both payables and receivables for accounts

Accounting is the process of analysing all of the financial records that have been made by the bookkeeper in order to generate financial reports, models, and predictions for the purpose of gaining an understanding of the current state of one's finances and making plans for the future.

The following are the primary functions of accounting:

• Putting together the entries for adjustment.
• Audits of the facts pertaining to finances
• Planning and reporting pertaining to taxes.
• Forecasting finances and conducting risk assessments.
• The creation of financial models, statements, and reports.

The goal of accounting is to provide you with the financial knowledge necessary to make more informed decisions about your organisation.

The Two Kinds of Accounting That Are Available for Your Online Store

In the field of accounting, systemization is absolutely necessary. You have the option of utilising either of the two prevalent forms of accounting systems to assist you in maintaining order inside your eCommerce financials.

1. Cash basis accounting

When you use the cash method of accounting, a new record is created each time cash enters or exits your bank account, depending on whether it was an expense or an income. All of the transactional information that is saved across all of your payment methods and bank accounts is reflected in your books.

The majority of small eCommerce enterprises should "start off" by using cash basis accounting as their method of bookkeeping. Because it is an easy system to keep up with and administer; you just report on all monetary transactions as they take place. In addition to this, you are always aware of the amount of cash that is available to you.

You won't be required to pay income taxes on payments that you haven't received yet if you use the cash basis of accounting when filing your business taxes at the end of the year. This is another advantage of using cash basis accounting. In order to reduce the amount of money you owe in taxes.

The cash basis of accounting is useful when:

• Small eCommerce sellers.
• Maker businesses.
• Products-on-demand stores.
• Amazon FBA stores.
• Dropshipping operations.

Due to the fact that it does not take into account future accounts receivable or payable, this accounting technique is not the greatest option for businesses that are engaged in larger-scale eCommerce.

Because of this, you should steer clear of cash-based accounting if you are:

• Manage a successful online store with a large inventory and a number of different suppliers.
• You should make preparations to submit a request for funding or to obtain a loan for your company.
• You are interested in recruiting auditors and obtaining financial statements that have been audited.

2. Accrual method

When you use accrual accounting, on the other hand, you are prompted to record each sale and expense as soon as they occur, regardless of when the money is actually deposited into (or withdrawn from) your bank account.

Because it is the way that the majority of financial institutions employ, accrual accounting is frequently referred to as the traditional accounting method. Therefore, think about lenders, auditors, investors, tax planners, and anybody else who would be interested in knowing about the financial state of your organisation.

Accrual accounting may appear to be more difficult to understand than cash basis accounting at first glance. You need to consider the money that is still owed to you (your account receivables) and deduct the charges that you have not yet incurred but may in the future (account payables).

After getting through that, though, you'll find that this accounting method begins to make more sense. Because it gives a more exact depiction of the amount of money that your company brings in on a monthly basis, it enables you to make financial projections that are more accurate by taking into consideration the financial responsibilities that you have now and will have in the future.

Accrual accounting, on the other hand, has the disadvantage of shifting the emphasis away from how much money a business currently possesses and more towards how much money the business currently transacts. Accrual accounting can sometimes give the appearance that your business is more lucrative than it actually is since it takes into account future payments and expenses. Therefore, you will need to maintain a closer eye on the movement of your cash.

Should you, as an eCommerce business owner, make the conversion from cash accounting to accrual accounting?

The question can be answered in one word: yes. You won't have a choice but to implement this accounting method as the foundation of your business. The cash basis method of reporting tax returns is only authorised for use by businesses that bring in less than $5 million in additional revenue on average per year.

Important Accounting Activities for Online Stores to Begin With

Now that we have all of the necessary tools, let's have a look at the most important accounting chores that you will have to complete on a weekly or monthly basis:

• Create categories for each transaction.
• Keep an accurate budget for the business.
• Maintain a state of taxation awareness.
• Make sure you know the difference between chargebacks and returns.
• Maintaining correct records should be a habit.

You will gain a better understanding of your cash flow and be better prepared for tax season if you are careful with each of these.

Classify Every Transaction

The most fundamental aspect of bookkeeping for eCommerce businesses is the classification of transactions. On your statement of cash flow, you should classify each transaction as either an income or an expense, depending on the nature of the transaction. The vast majority of accounting programmes will automatically classify the transactions for you; however, you should go through them and give the appropriate supplementary categories (e.g. salary, marketing, returns, etc.).

Putting your financial dealings into categories enables you to more accurately estimate your:

• Costs incurred frequently as well as occasionally
• Revenues received each month

You may then evaluate the income statement of your internet business, make preparations for your taxes, and formulate a financial plan for your company using these statistics.

Keep Your Business Budget Up to Date

A budget for a company is a comprehensive accounting of all the money spent on business-related expenses and other commitments, which are then compared to the consistent income the company receives. The total amount will inform you how much cash is required in order to achieve financial stability or make a profit.

The following are some of the ways that a budget can assist you:

• First, keep an eye on the trends of your financial flow.
• Maintain vigilance with regard to all of your recurrent and unanticipated costs.
• Learn when to splurge and when to cut back on your spending.
• Put some of your earnings in savings in case of inclement weather (and taxes).
• Avoid or minimise the amount of debt your company has.
• Lastly, remember to keep your eye on the long-term financial goals.

Accounting Tips

1. Acquire some accounting software for yourself

Do not commit the rookie error of using a spreadsheet created in Excel. In this scenario, accounting software is an absolute must and an essential component. Those of you who use Shopify will have a wide variety of options for accounting software to choose from.

You are able to utilise them for free during the trial time so that you may determine which choice will work best for your company and your tastes. The next step is to use the app store to search for a bookkeeping system that is already built in and is capable of tracking sales, costs, and inventories. Believe what I say; doing so will simplify the entirety of the process for you. You also have the option of using FreshBooks for your online store's accounting needs.

2. Keep an eye on your cash flow

To get started, you will need a bank account that is solely dedicated to your online store's financial transactions. Monitoring the cash coming into and going out of your firm will assist you guarantee that it is producing an adequate amount of money. When it comes to managing a company, things almost never go as smoothly as they appear. Therefore, it would be beneficial if you tracked the timing of the money leaving and entering your account each week.

In addition, boost your business's cash flow by following these suggestions:

• You shouldn't pay your bills before or after the due date at any point.
• Provide clients with the option to subscribe on a monthly basis in order to generate a consistent stream of monthly revenue.
• Maintain a "Just in Case" reserve in the bank account used by the company.

3. Acquire a solid understanding of your cost of goods sold

You should first determine your COGS utilising the weighted average method when you are first starting out in business. Then, when your company grows, you will be able to monitor how the costs are rising, and this will be easier for you to do. It is important to have a clear understanding of the kinds of costs for which consideration should be given and those for which it should not.

For instance, if you pay your employees based on the quantity of products they produce, you need to factor this into the cost of goods sold (COGS). On the other hand, if you pay them a flat hourly rate regardless of what they make, then you should not include it in the cost of goods sold (COGS). The more variables that are taken into consideration, the more complicated the situation becomes. You can make things easier on yourself by linking the accounting software to your online store so that it can automatically keep track of the actual COGS.

4. Add up all other costs

In addition to the cost of goods sold, there are also other expenses, such as wages, operating costs, and time off. "Fixed expenses" refer to the costs of running a business that do not change regardless of whether the company is making more money, less money, or none at all.

For instance, whether you sell one product or one thousand, the monthly rent payment that you are responsible for paying will not change. When you're working out these costs, it's important to keep in mind that they won't be factored into your COGS and won't have an impact on your gross margin. However, because they have an impact on your cash flow and earnings, it is necessary for you to monitor them.

The following are some examples of common fixed expenses that you need to keep track of:

• Rent
• Utilities
• Insurance
• Property Tax
• Interest on loan payments
• Salaries

5. Determine the amount of sales you need to break even

There is no purpose in continuing to manage a company if it is not generating a sufficient amount of profit, is that correct? In addition, you wouldn't want the profit margin to remain unchanged, would you?

You have hopes that it will be successful. Because of this, you really must create a budget and a financial plan for your company. Plagiarism checker Your break-even point is something that needs to be determined if you want to know whether or not you will be generating a profit in the month that is coming up or not.

If you know how much you need to sell in order to break even, then you know how much money you need to bring in. But you most certainly would not want to let things remain at that - running and selling a business in order to pay for things but keeping little for yourself in the process. Tracking how close you are to the point where you break even is essential if you want to keep your profit margin healthy and stable. The formula for doing so can be found in the following tutorial.

6. Keep tabs on both your sales and your profits before taxes

Tracking your sales is the next step after determining how many units need to be sold before you can consider your business profitable. This will assist you in managing your finances and provide you with an early warning sign of any potential problems that may arise. Then, if you see that you are becoming low, you will be aware that you need to take action to address the situation.

You can now track sales of applications and tools through your e-commerce site by connecting it to Google Analytics. This will assist you in maintaining compliance with a variety of accounting standards pertaining to income. If the different types of costs confuse you, you should ask your accountant to handle this part of the process. You need to be able to independently monitor it, as this is the most critical thing.

7. Establish appropriate tax rates for consumers

If you have no prior experience with finances, filing your taxes may seem like a living nightmare to you. Indeed, they are capable of becoming quite challenging. If your company has a global presence and caters to customers all over the world, the level of complexity may increase. What should the concluding chapter of my dissertation include? Additionally, if you deal with a variety of products and services, it would be wise to seek the advice of an expert.

You can take a more autonomous approach by using e-commerce software, which will handle the majority of the responsibilities for you. First, you need to make sure that a product is marked as taxable. After the customer enters their address, the software will compute the total amount of tax that has to be paid. Follow these step-by-step instructions on Shopify to immediately configure tax exemptions in your online store if you sell any products that are exempt from paying taxes.

8. Make a budget for your upcoming tax payments

When it comes to taxes, there is more to it than just collecting the money. Additionally, the taxes need to be paid by your company. The amount of tax that you are required to pay will change according to the place on the map from whence your business operates. In addition to this, you will be responsible for submitting the tax that was collected at the fundamental level. Therefore, you need to be aware of how to differentiate between revenue and tax.

You will be able to add tax to your sales price and generate a tax report for the same if you are using Shopify, which is another benefit of using the platform. Rewriting essays online services. This piece of software will inform you of the total amount of money that has been collected in taxes, which you can then set aside. Another useful piece of advice is to set aside money specifically for the purpose of paying taxes by establishing a separate bank account for your company.

9. Acquire a comprehension of your balance sheet

The balance sheet allows you to keep track of the long-term health of your company's finances and gives you an idea of how well it is performing. One way to interpret the balance sheet is as a more comprehensive version of the income statement.

The equity section of the balance sheet is included. The term "assets" refers to everything that has worth and can be possessed, such as land, machinery, or cash in the bank. Your obligations in the form of payments and debts are your liabilities, and the difference between your liabilities and your equity constitutes your equity.

Consider the following scenario: you have a piece of equipment that is worth $80,000, but you still owe $30,000 of that amount to the bank from which you borrowed the money to purchase it. This indicates that the amount of equity you have is $80,000 minus $30,000, which is $50,000. Always check to see if the amount of equity exceeds the amount of liability. This demonstrates that your company is in a sound financial situation and doing well.

What to consider when choosing accounting solutions

You will want to look for scalable digital solutions that save you time if you are the owner of a small business (or if you are an agent serving in the position of an accountant or bookkeeper). This eliminates a few software programmes, which are truly only available to large company customers that have the financial means to spend thousands of dollars on the initial setup and continue paying for the subscription each month.

Try to find software that doesn't charge any kind of joining or setup fee, or at the very least, a fee that won't completely derail your cash flow. When considering the cost of the monthly membership, it may be helpful to think of it, at the very least to begin with, in terms of the number of hours that are saved. To reiterate, if you are able to save at least a few hours of either your own time or the time of your client, you will have made a solid beginning.

It is important to determine whether your client (or their service provider) has a preference for a particular piece of software. For instance, one of the parties may already be familiar with a certain piece of software because they employ it on a daily basis to enter data or because it has proven to be effective with other customers whose needs are comparable to those of their own.

Support is important when getting started with a new accounting software system. Even if you're a relatively tech-savvy operator, there's a lot of work involved in training every person who will need to use the system. In addition, there's a bit of admin involved in setting up accounts, security and permissions.

You may also have the option of importing historical records from another program, which takes content migration know-how. For this, you'll want to make sure (in advance) that the software of your choice comes with on-demand support on a platform (online, phone, in-person etc.) that works for you.

Finally, you want to make sure your accounting software of choice ‘talks to’ other programs and tools you’re using or will want to use.

Integrating all your hardware and software

It is quite improbable, if not downright impossible, for you to acquire all of the software solutions that your small business need from a single vendor.

Developers are required to focus their efforts as a result of the increasing specialisation of application uses and the advancement of hardware. For instance, programmes for design and creativity are distinct from banking applications and card processing devices; you wouldn't be able to get all three from the same store.

When it comes to selecting the appropriate digital tools for your company, this means that it is entirely up to you to ensure that all of the gear and software you utilise is compatible with one another and can perform as expected at all times. That means that if one tool collects data and another tool processes or stores that data, the data should be able to travel between the two tools without requiring any involvement from a human being.

Before you make any promises, you will want to ensure that the following common integrations are working properly.

1. Communication platforms

You may be able to automate more processes if your accounting software of choice can talk to the communication platforms you use. For example, some accounting programs can integrate with your email and scan through to identify things like receipts for expenses, so you don't have to enter small items manually.

Some communication platforms that are used for project management can also export data. So, for example, once a task or milestone is complete, and the money becomes 'earned' (and therefore is accounted for differently), the project management software can 'tell' the accounting software to make that change.

2. Point of sale/e-commerce software

If you run a company that processes transactions using a point-of-sale (POS) system or an e-commerce platform, the accounting software you use for your company should ideally be able to import sales data from the software used to process sales. In this way, you won't be forced to manually enter transactions, and you also won't risk losing out on any information that was gleaned from the POS software and that your accounting software could use for reporting purposes.

Whether it's an import option or a real-time integration, every major provider of cloud-based accounting software for small businesses in Australia offers some kind of connectivity with e-commerce or point-of-sale systems. Just make sure that the level of subscription you choose includes not only that integration but also, and this is very crucial, the support service that was described earlier to put that integration into place if it is required.

Also, check to see if the e-commerce platform you use or the point-of-sale software you use is labelled as a "third party integration," and if it is, ensure that you have access to the professional help or the tool you require in order to connect the two.

3. HR and rostering tools

HR software automates, streamlines and centralises any aspect of human resources management. This means everything from onboarding and payroll to leave applications and rostering/scheduling.

If you currently use HR software to manage staff, ensure it integrates with your preferred accounting software, so you're not stuck manually entering employee costs as they are incurred and paid.

The top few most-subscribed accounting software packages in Australia are all created by companies that also have HR/payroll software. This allows for automated journal entries, matching payroll transactions, and more.

Generally, both accounting software and its integrated HR software will have security permissions that allow you to maintain existing internal controls over payroll processing.