The good thing about the internet is that you can reach more people than ever before.
That’s why ecommerce has become such a popular option for entrepreneurs.
With an online shop, you can have your products available 24/7 to customers and ecommerce clients all over the world.
However, a broad range of customers won’t make you successful unless you have an efficient bookkeeping and accounting process in place.
Here, we will cover why bookkeeping for online stores is so important, how ecommerce differs from other small businesses, and the best bookkeeping practices for an ecommerce company.
What is ecommerce bookkeeping?
Bookkeeping involves tracking, organizing, categorizing, and storing all of the financial transactions that are related to your business.
This information is then translated into financial reports that provide small business owners insight into the financial health of their businesses.
These financial reports are also crucial when it comes to audits and filing taxes.
What’s unique about ecommerce bookkeeping?
Ecommerce bookkeeping encompasses all of this, but with one unique aspect: all business operations are performed online.
Therefore, ecommerce bookkeeping revolves around the business’s unique need of operating online.
How is ecommerce bookkeeping different from that of physical retail stores?
While there are a lot of similarities when it comes to bookkeeping for online businesses and bookkeeping for conventional retail businesses, it’s the differences that really set them apart.
See also: Accounting for Retail: Best Practices, How-Tos, FAQs
1. All ecommerce business operations are digital
With an online store, all sales, returns, and refunds are processed and recorded digitally.
For this reason, there’s really no getting around using accounting software.
In fact, this digital information being processed from ecommerce businesses can be integrated with accounting software to make your bookkeeping system less complicated.
2. Ecommerce has a range of bookkeeping needs
With an ecommerce business, you need a bookkeeping solution that keeps up with multiple currencies, merchant fees, foreign sales, sales tax, shipping, inventory, and alternative sales.
What are some considerations when establishing a bookkeeping system for ecommerce businesses?
When establishing a bookkeeping platform for your ecommerce business, there are a few things to keep in mind.
1. Your bookkeeping system should be able to process different forms of payment
Your bookkeeping platform needs to account for various forms of payment, especially since you are dealing with customers from all over the world.
The more online payment methods you offer, the more online customers you will attract, which will increase your revenue.
Ensure your payment processors sync with your accounting software
You need accounting software that syncs up with your payment processors so that ecommerce sales are being recorded in real-time, which will keep your inventory and account balance continually updated.
This will give you a more accurate picture of your cash flow.
2. Your bookkeeping system should track the costs of exchanges, refunds, and returns
Your ecommerce accounting and bookkeeping procedure should entail an accurate method for tracking the costs of exchanges, refunds, and returns.
For example, with a refund, not only do you have the refund itself, but there are also processing fees that need to be taken into account.
As much of a pain tracking these costs can be, it’s important to offer exchanges, refunds, and returns with an online business because it encourages shoppers to purchase from you, especially if they know that there is something that can be done if they’re unhappy with their purchase.
This is particularly important when you have customers buying products that they are not able to examine in person before purchasing.
3. Your bookkeeping method should track merchant fees
Your bookkeeping method needs to have the capability of tracking and recording merchant fees.
There are always transaction fees with third-party payment processors.
These fees need to be deducted from associated payments since they are considered business expenses and not part of revenue.
Separating the two is essential for ensuring accurate financial data.
4. Your bookkeeping software should integrate with your inventory management system
Inventory management is an important aspect of your ecommerce business.
Unfortunately, inventory management can get quite tricky when selling products across multiple platforms.
Selling on multiple platforms makes inventory harder to manage and track.
It’s vital to get products to customers on time, keep track of items that need to be restocked, and update your website when you’re out of stock.
That’s why it’s so important to have accounting software that integrates with your inventory management system so that it can keep up with inventory in real time.
Otherwise, you’re going to have a lot of unhappy customers.
Inventory management and cash flow are two of the most common problems when it comes to bookkeeping practices for ecommerce businesses.
5. Your shipping costs should be tracked and recorded accurately
Shipping fees can also be tricky to track and record.
Customers may pay a different amount for shipping than what the delivery services charge you.
Shipping fees are considered expenses, but the packaging is considered the cost of goods sold.
In your bookkeeping procedures, you need to make sure that these shipping costs are recorded and categorized accurately.
6. Your bookkeeping system will have to account for foreign sales
Foreign sales add their own challenges to an ecommerce business bookkeeping system.
The bookkeeping will have to account for foreign currency and its constantly changing conversion rates.
Exchange rates can change from the time the purchase is made to when the payment is processed, so all of this needs to be accounted for in order to ensure your books are accurate.
7. Your bookkeeping system should account for sales tax
Sales tax is collected with every purchase.
Your bookkeeping system needs to separate the sales tax from the purchase because sales tax is not part of your revenue.
Instead, this amount needs to be sent to the government.
You should have a bookkeeping system that makes sure that the tax rates are correct for customers and effectively separates the two so you have an accurate picture of your revenue and are submitting the correct amount of taxes to the government.
This will also ensure that you are setting aside enough money and getting organized for taxes.
Why is bookkeeping so important for ecommerce businesses?
Bookkeeping is the foundation of an ecommerce business (or any business, for that matter).
Bookkeeping is the only way to gain insight into how your business is operating at any given time.
1. Bookkeeping is a great indicator of when to be proactive with potential financial issues
Bookkeeping is the best way to be proactive when it comes to any financial issues that may arise.
Bookkeeping will throw out red flags when there is a potential problem, which gives you time to address any mistake before it snowballs.
2. Bookkeeping helps to create predictions about the future of your business
Bookkeeping will also help make predictions about the future of your business.
This will allow you to plan for the future so that your business grows.
Bookkeeping is key for financial forecasting and small business growth.
3. Bookkeeping simplifies the tax preparation process
Bookkeeping also ensures that you’ll be prepared when tax season rolls around so that you can maximize your tax deductions.
By maintaining financial records and reports, you will be better able to comply with all of the tax regulations.
Frequently asked questions
Bookkeeping involves tracking, recording, organizing, categorizing, and storing all of the financial transactions that relate to your business.
Bookkeeping for an ecommerce business owner involves all of that but revolves around the unique needs of online businesses.
Ecommerce bookkeeping entails tracking and categorizing expenses and income.
Ecommerce accounting deals more with analyzing financial statements and creating strategic tax plans.
Accounting is basically analyzing all of the financial records, financial reports, and financial statements produced by the bookkeeper.
Bookkeeping for online stores should pay particular attention to inventory management and cash flow management.
The accounting process involves the analysis of the income statement, balance sheet, and cash flow statement.
If you are experiencing losses, a cash flow statement will pinpoint where the overspending occurred.
The best bookkeeping services include strategic planning, accounting software management, payroll, and tax preparation.
Keeping the books for ecommerce businesses brings its own challenges to the table.
There are so many aspects of the business to keep up with such as sales from various platforms, diverse payment options, multiple currencies, foreign sales, taxes, merchant fees, shipping, and inventory management.
That’s why it’s best to either use accounting software or hire a professional that provides ecommerce bookkeeping services.
Caryl Ramsey has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.
Shoeboxed is a receipt scanning service with receipt management software that supports multiple methods for receipt capture: send, scan, upload, forward, and more!
You can stuff your receipts into one of our Magic Envelopes (prepaid postage within the US). Use our receipt tracker + receipt scanner app (iPhone, iPad, and Android) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.
Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.
Join over 1 million businesses scanning & organizing receipts, creating expense reports, and more—with Shoeboxed.
Try Shoeboxed today!