Everything you need to know about eCommerce accounting but were too afraid to ask
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Everything you need to know about eCommerce accounting but were too afraid to ask

Most eCommerce business owners can attest to the fact that the path to success is littered with obstacles. As soon as the money starts rolling in, it all becomes worth it...until you discover that your growth and success come with obstacles of their own. E-Commerce is complex. Each platform comes with its own fees, limitations, policies, and tax liabilities that you need to master. It doesn't take long before you find yourself tracking cash flow, fixed costs, variable costs, balance sheets, returns, reversals, and sales tax on multiple platforms.

Don't worry - eCommerce accounting solutions and firms can help your online business track the most complex data (and keep your bank account in the black). In fact, it can be easier than you think when you start to understand eCommerce accounting more clearly; just what we’ll be doing in today’s blog post as we look at EVERYTHING you need to know about eCommerce accounting but were too afraid to ask.

What is ecommerce accounting?

Ecommerce accounting is the practice of recording and managing all financial data and transactions relevant to an ecommerce business. eCommerce bookkeeping involves many of the same practices as regular business accounting but will also emphasize and specialize in practices related to ecommerce companies specifically.

E-Commerce accounting services will often assist with financial benchmarking to measure success as the business grows or expands into new territories, run financial reports (including profit and loss statements), and compile information related to inventory purchases and operating expenses for your strategic benefit. By using Link My Books, your accountant can easily link your accounting software to your eCommerce store, to simplify the entire process and derive even better insights.

Differences between eCommerce accounting and business accounting

You might think that eCommerce accounting is the same as business accounting, but there are a few additions. eCommerce accountants need to track inventory, international sales tax, and complex fees in addition to the regular bookkeeping functions present in every business.

eCommerce sellers have different needs when it comes to accounting, which is why eCommerce accountants will handle basic bookkeeping functions (invoicing, payroll, balance sheets, income statements, cash flow management) as well as functions an eCommerce business may require, including strategic tax planning or specialist reporting. These features may include:

1. Tax Management

eCommerce sales tax can be complicated, which is ecommerce accounting or accounting software for ecommerce platforms usually focus heavily on tax management, planning, and preparation. Different countries are governed by different tax laws, and in some instances, provincial or state tax laws may come into play as well. If your accountant isn't familiar with those laws, you may overpay your tax bill. Link My Books will simplify this process through their easy-to-use tax wizards, so your tax calculations will be more accurate.

2. eCommerce Bookkeeping

A bookkeeper can deliver all of the information you need when you need it, including your balance sheet, income statement, profit and loss statement, and net income calculations at the drop of a hat. They can also help you with your tax returns or cash accounting needs, ensuring that you have enough money to meet your obligations like payroll or warehousing. For business owners in any other industry, this is more than sufficient.

eCommerce entrepreneurs, however, have different business needs. For example, they need to track customer returns at a far greater rate than businesses selling products in brick-and-mortar stores. If not tracked properly, returns can throw off your sales, inventory, and sales tax records in one fell swoop. Even an experienced accountant will recommend using accounting software that can accurately calculate and track the impact of returns rather than relying on manual entry.

3. Tracking stock

An eCommerce entrepreneur rarely puts all of their eggs into one basket (or all of their stock on one platform). They will probably use multiple channels to promote their goods and may even use third-party logistics companies (or Amazon FBA) to warehouse and ship their wares. You need to track how much of the product is still in production, how much is en route, at customs, warehoused, or being processed as returns. Inventory management impacts your financial reporting, especially your cash flow, so it's important to keep on top of it.

4. Complex Data

The volume and nature of the information you need to track with every sales order can be overwhelming. Many ecommerce platforms have complex shipping and listing fees (along with other costs) that make it hard to calculate your profit margins with any level of accuracy. They may provide financial statements, but this still requires detailed analysis and manual data entry, which can lead to human error if you aren't familiar with ecommerce bookkeeping. Historical data may not be readily available, so it requires detective work to track down transactions for a particular period.

Final Thoughts

A traditional accountant may have the knowledge you need to run your online store off an ecommerce platform or track your key metrics, but even the most experienced ecommerce accountant needs the right tools.

By connecting your bookkeeping software to a solution like Link My Books, you will simplify the entire process. (It will even make filing your tax return easier and more accurate!) Link My Books was designed with ecommerce businesses in mind. Even small businesses can benefit from this integration.

Linking your online shop to your accounting software means that you gain complete visibility over your financial records and books. By correctly categorizing transactions, your accounting system can break down your most important cash flow statements, gross margins, and other important information every business owner needs to have at their fingertips.

Link My Books integrates with leading cloud accounting software solutions like Xero and QuickBooks Online, connecting your accounting solution to your bank accounts and leading stores like Amazon, Etsy, Shopify, and eBay.

About the author

Dan Little
Dan Little
Dan Little - Co-Founder & CEO of Link My Books. When he discovered how frustrating bookkeeping can be when selling on Amazon he sought to create a solution.
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