A Detailed Guide to E-commerce Bookkeeping
If you’re reading this, you’re likely looking for information about e-commerce bookkeeping.?
As a seller on marketplaces like Amazon, Shopify, BigCommerce, Walmart, or any other online e-commerce platform, you know each has its own fee structure at various stages of the buyer's journey.
From platform fees to optional perks, you incur costs at every step of the business process.
While these fees are standard for online platforms, tracking the inflow and outflow of money for every expense and income can be challenging for e-commerce sellers.?
To simplify your daily cash flow management, hiring an e-commerce bookkeeper who's familiar with the specific e-commerce platform you're using can be an excellent solution for your business.
So, let's get started with understanding about e-commerce bookkeeping.
What is E-commerce Bookkeeping?
E-commerce bookkeeping is the process of recording, organizing, and managing the financial transactions of an online business.
It means keeping track of every sale, purchase, expense, and refund in the business.
You'll need a "chart of accounts" to do this and organize all transactions.?
A chart of accounts is a list of all the categories where your business spends or makes money.
It's important to check that your records match your bank statements and the payment gateways you use, like PayPal or Stripe, etc.
Also, you need good inventory software to help you track the products you sell.?
This helps calculate the correct "cost of goods sold" (COGS), which tells how much you spent on the products sold.?
Lastly, you must keep track of the sales tax rules for your business and apply the correct tax to each sale.
Generating reports will help you see how your business is doing and ascertain you pay the correct taxes at the end of the year.
Why E-commerce Bookkeeping is Different from Traditional Bookkeeping
E-commerce bookkeeping has some unique aspects that make it different from regular bookkeeping:
Integration with Online Platforms
You need to connect your e-commerce platform (like Shopify or Amazon) with your bookkeeping software (like QuickBooks or Xero).?
This helps avoid manual data entry, which can be boring and lead to mistakes.
These integrations allow you to see accurate sales and expense numbers in real-time.?
Some even automate sales tax calculations, which is helpful because keeping track of taxes from different locations can be confusing.
High Volume Transactions and Digital Payments
E-commerce businesses can grow fast, which means more sales transactions.?
This can create a lot of manual work and mistakes if you don't use automation.
You should also check your bank statements often because online payments can be tricky to follow.?
You'll need to track fees from payment processors like PayPal and manage returns or chargebacks (when customers ask back their money).
International Currencies and Tax Rules
When you sell to customers in other countries, you have to deal with multiple currencies.?
Even though your e-commerce platform converts currencies for you, you still need to record the original amounts.
Accounting software that supports multiple currencies is useful.?
You also need to know the tax rules in other countries, as some may require you to pay taxes like VAT (Value Added Tax).
E-commerce Bookkeeping Tips
Here are some tips to make e-commerce bookkeeping easier and more efficient:
Using Technology for Efficiency
Simple bookkeeping software like QuickBooks Online or FreshBooks can be useful for beginners or small businesses.?
For growing businesses, you'll need something more powerful like Xero or Zoho Books.?
Managing Multichannel Sales
If you sell on different platforms (like Shopify, Amazon, and eBay), you need software that handles transactions from multiple places.?
Dealing with Returns and Refunds
Always track returns and refunds carefully, noting details like the customer's name, reason for the return, and any fees.?
Don't forget to update your inventory and COGS calculations.?
Some bookkeeping software can handle these tasks for you, including automatic inventory updates.
Traditional vs. E-commerce Bookkeeping
While the fundamentals of bookkeeping stay the same, e-commerce bookkeeping has its own challenges.?
Online businesses deal with things like tracking inventory, managing online payments, and dealing with more complicated tax rules because they sell to customers from different locations.
Sales tax can be harder to figure out because you might sell to customers from different states or countries.?
You also need to track shipping costs, manage digital downloads, and handle returns online.?
One big issue is the potential for online fraud and chargebacks. Also, it can be difficult to track online ad spending on marketing campaigns.
E-commerce Bookkeeping Practices
Multiple Business Fees
While an online business doesn’t pay for things like rent or electricity, there are still costs that can add up.?
When you figure out how much money you’re making, remember to include all the fees, such as:
Multiple Payment Methods
Most customers pay with credit cards, but you should think about offering other payment options like cash, checks, PayPal, or gift cards, especially if you also sell offline. While this might make your bookkeeping more complicated, it improves the experience for your customers.
If you take cash or checks, your bookkeeping won’t show the income until you deposit the money in the bank. You’ll also have to enter the details of the transaction and organize them correctly in your records.
For gift cards, the sale isn’t counted as income until the card is used. This is because you haven’t sold any products until the customer actually redeems the card.
Daily Bookkeeping Tasks
Every day, you should record and categorize each transaction and keep an eye on your cash flow. Cash flow shows how much money comes in and goes out of your business regularly, helping you avoid running out of money.?
You can automate many tasks using bookkeeping software like QuickBooks , Xero, FreshBooks, or Zoho Books.
Find Your Break-Even Point
Your break-even point is the number of sales you need to cover all your costs before making a profit.?
You can figure this out by looking at your business records. Knowing this number helps you decide if you need to lower your costs or increase your prices to make more money.?
This is an example of how good bookkeeping habits can help you plan your cash flow and see how much money you’ll have in the future.
Monthly Bookkeeping
At the end of month, your bookkeeping records must match with bank statements. Also, review your inventory levels so you can plan for future sales and avoid stock shortages.?
Make sure you update your COGS calculations and analyze key financial reports like profit and loss statements to see how your business is doing.
Annual Bookkeeping
At the end of the year, gather all your financial records for tax filing. You should also do a physical inventory count and compare it to your records.?
Review your assets (things like buildings or equipment) and update their value. Analyze your financial statements to spot trends and make plans for the next year.
Collect and Pay Sales Tax
Many online selling platforms will calculate and collect sales tax from your customers, but that’s just the first step. You still need to pay that tax to the right government agency.
It’s important to remember that sales tax isn’t your money. It’s something you owe to the government. In your bookkeeping, you should show the difference between your actual income (revenue), sales tax, fees, and how much money ends up in your bank account.
7 E-commerce Bookkeeping Mistakes
When you start doing bookkeeping for an e-commerce business, it can feel complicated.
There are a lot of things to remember, and mistakes can happen. Here are some common errors that small businesses make:
Doing Everything Manually
Entering data by hand can lead to mistakes and take a lot of time. It’s easy to make errors or duplicate information.
Not Following International Tax Rules
Tax rules are different in each country, and many businesses don’t check if they are following the right laws because they sell online.
Not Keeping Accurate Inventory Records
One mistake in tracking your inventory can cause bigger problems later, affecting your financial reports.
Not Syncing Transactions with Accounting Software
If you don’t connect your online store with accounting software, some transactions might get missed, making it hard to see the complete picture.
Getting Sales Tax Wrong
Sales tax is confusing, and many businesses make mistakes by not submitting the right amount or doing it at the wrong time.
Disorganized Records
When too many people handle the bookkeeping, records can get messy. This can lead to mistakes or missed information.
Not Checking Accounts Often
Bookkeeping can be boring, so businesses sometimes put it off. But not checking accounts regularly can lead to bigger problems.
How to Avoid These Mistakes
Use Accounting Software
Tools that automatically record and track your finances will save you time and help reduce errors.
Hire an Accountant
If you don’t like working with numbers, it’s a good idea to hire someone to do it for you. An accountant can answer your questions and keep your records updated.
Reconcile Often
Check your records regularly, at least every three months, or even better, each month.
Learn about Sales Tax
Even though it’s complicated, understanding sales tax will help you avoid fines or penalties.
Use a Chart of Accounts
It helps you keep track of your budget, which is especially important as your business grows.
Be Consistent
Whether you use a single entry or double entry bookkeeping system, make sure you stay consistent.
Outsourcing E-commerce Bookkeeping
Why Outsource Your E-commerce Bookkeeping?
Outsourcing your bookkeeping can save you time and energy, allowing you to focus on running your business.
Professional bookkeepers are more efficient and stay up-to-date on tax rules, making it easier to avoid mistakes.
They also scale with your business, adjusting their services as your company grows.
Choosing the Right E-commerce Bookkeeping Service
To choose a bookkeeping service, first think about what you need. Do you sell internationally or across multiple platforms??
Then, research bookkeeping services with experience in e-commerce, and compare their offerings.
Make sure they can handle software integrations and provide transparent pricing.?
Finally, set up consultations with your top choices and ask about their processes and how they communicate.?
Choose the one that fits your business best and offers the most value.
Hire E-commerce Virtual Bookkeeper from Wishup in 30 Minutes
Over 1500+ e-commerce business owners have employed Wishup virtual assistant to rethink the way they work.
E-commerce bookkeeping is not an easy task considering the number of things that have to be recorded daily, weekly, or on a monthly basis.?
Skipping to track and record any of it would cost you a fortune.
Taking into account each single process, automation of workflow, integration of tools and need to check and maintain books.
You need a professional who is an expert in e-commerce bookkeeping.
Schedule a free consultation today or email us at [email protected] ?