E-Commerce Bookkeeping Guide: Accounting Strategies for Online Businesses

Selling in multiple tax jurisdictions introduces a new level of complexity to your ecommerce business. For example, if you’ve reached ecommerce sales tax thresholds in various states, you’re legally obligated to collect, remit, and report taxes in each location. It’s not just about preparing for growth but ensuring your bookkeeping practices adjust alongside that growth. Begin with forecasting so you understand where you envision your business in the next few years. A high-growth projection might lead you toward advanced accounting software suited for high transaction volumes. Yet, these aren’t just numbers on a page — they’re a goldmine of insights.

Basics of Ecommerce Bookkeeping

• A balance sheet is so named because both columns should be balanced and show the same total profit or loss at the time you create the sheet.
• This extremely helpful document keeps track of cash and cash equivalents coming into your online store and going out, too.
• For growing ecommerce businesses, Bookkeeper360 offers support for B2B wholesale expansion.
• Payment gateways integrated with the ecommerce platform facilitate smooth transactions.
• Merritt Bookkeeping offers a streamlined approach to ecommerce accounting.
• Inventory expenses are estimated using methods such as FIFO (First-In, First-Out) and LIFO (Last-In, First-Out), which have an impact on reported profit.

Business owners should have a good knowledge of the cash flow in their business. ECommerce bookkeeping will help you to record and store those transactions. To succeed, the total expenditures for an online business should not exceed overall sales. Financial reporting encompasses preparing and presenting financial statements that summarize the financial performance and position of the eCommerce business. One column lists the business’s holdings, and the other lists the liabilities.

Ecommerce accounting best practices

Their https://www.bookstime.com/ expertise spans multiple e-commerce platforms, ensuring comprehensive support for diverse clients. Merritt Bookkeeping has received positive reviews from various sources, praising their attention to detail and customer service. Their straightforward approach may be well-suited for ecommerce businesses seeking hassle-free accounting solutions. P&L statements help identify trends in sales, pricing strategies, and cost management. Ecommerce businesses can use this data to optimize pricing, reduce expenses, and improve profit margins.

Reconciling Bank Statements

In Shopify, you have complete control over fulfillment — you can fulfill the orders yourself or opt for a fulfillment provider. Your balance sheet is very important when it comes to allocating capital more effectively, showing you where to invest, when to expand, or when to tighten spending. It is essentially your financial scorecard, clearly revealing what you own, what you owe, and what’s left for you and your stakeholders. Try Shopify for free, and explore all the tools you need to start, run, and grow your business. Sales tax is added to the retail price of every online sale and is settled at checkout.

Revenue Recognition

If the total cost of goods available for sale is $2,000 and there are 200 units available for sale, the weighted average cost per unit would be $10. When selling inventory, the COGS would be based on this weighted average cost per unit. Using the same scenario as above, under LIFO, the 50 units sold would be valued at $12 each, representing the cost of the most recent inventory purchase. A receipt is a proof-of-purchase which is received after the goods are delivered, but it differs from an invoice or a sales order, Bookkeeping for Startups because it doesn’t serve as a request. Receipts are simply documents that list the items or services purchased and delivered, showing how much the customer paid.

Cost of Goods Sold (COGS)

In other words, every time you sell a product and get paid, you want these numbers to immediately appear. Although bank account reconciliation can (and should) be automatic, you do need to manually review the data from time to time. This ensures there are no discrepancies and everything lines up correctly. Once you’ve chosen your software and are all signed ecommerce bookkeeping up, configure your setup to sync your transactions.

Cash flow statement

As an eCommerce owner, you already have a lot on your plate, but skipping bookkeeping for your eCommerce business isn’t an option. If you want your eCommerce to thrive, you must focus on the essentials of e-commerce bookkeeping for maintaining financial health and making informed business decisions. This might seem overwhelming at first, but it is one of the main reasons most eCommerce businesses fail. Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. The P&L statement is essential for understanding profitability and identifying financial strengths or weaknesses. Summarizing revenue, expenses, and costs, it provides a clear overview to help make informed decisions.

Sign up for our 14-day trial to automate your bookkeeping, unify your e-commerce data, and accelerate your store’s growth by making informed decisions. Consider an online accounting software that identifies, tracks, and categorizes these fees as operating expenses or Cost of Goods Sold (COGS). In our humble opinion, Link My Books is the best bookkeeping solution for eCommerce entrepreneurs.