Ecommerce Accounting 101

Ecommerce is the newest trend in shopping. People in today’s world prefer to get what they want from the online stores due to enhanced convenience. On the other hand, merchants and retailers are looking forward to set up ecommerce stores and cater the demand. When your business starts an ecommerce store, you will notice that it is driving a massive amount of sales per year. Due to the same reason, you will have to pay special attention towards proper bookkeeping. That’s where the ecommerce accounting services will come into play.

What’s the difference between Ecommerce accounting and bookkeeping?

We have noticed that many people get confused when they are trying to figure out the difference that exist in between accounting and bookkeeping. Bookkeeping is the process when you record all the day to day transactions. If you are managing an ecommerce store, it will be the list of daily transactions that you do with the customers. Along with that, you are provided with an effective method to track your money. On the other hand, accounting is all about the big picture. It’s where you take care of your taxes, financial reports and your plans to ensure growth in the future.

Do you want to start an ecommerce business? Then you should read this

This section is for the people who are looking forward to start a new ecommerce business. We will be sharing some useful and effective tips, which you can follow in order to get the job done in a convenient manner, while ensuring positive results at all times. In case if you have already started a business, you can skip this section and move directly to the second section, where we discuss about accounting services for ecommerce.

  • Selecting the business entity

Business entity can simply be defined as the legal form of your business. Some of the businesses are set up as limited liability companies, whereas others are set up as sole proprietorship. If you are going to set up the company under you and if you are going to be the only person who is working for the company as of now, going forward with sole proprietorship is the best option available to consider.

Or else, you can take a look at the corporations or partnerships. You will have to spend a bit more time to set up this kind of a company. It is up to you to go ahead and pick this kind of a busy entity depending on the nature of business that you are planning to run. In other words, you must take a look at all the future plans and make the decision.

If you don’t want to end up as the next Warby Parker, you are strongly encouraged to set up your business as a limited liability company, which is also known as Pte Ltd. This is the best method available for you to keep all your personal assets away from the business assets. In case if your business gets bankrupt, you will be able to keep the peace of mind because there will not be any impact on your personal assets. However, there are some strict legal procedures that you will have to go through when setting up a limited liability company. Therefore, you will need to discuss with your lawyer and come up with it.

  • How to pick the best accounting method

At the time of starting a business, you should have a clear understanding on how to pick the best accounting method as well. In here, you will notice that two main methods are available for you to handle cash. The first method out of them is cash, whereas the second method is accrual. Regardless of the method that you pick, you are encouraged to stick to it. That’s the reason why you need to make sure that you are selecting the best accounting method at the beginning of the business. Then you will be able to stick to it and go on a long journey.

When it comes to the cash method, accounting will provide you with the opportunity to record all the transactions when money is coming into your business or going out of your business. For example, when you receive an invoice from a vendor, you just need to record the transaction only at the time of making the invoice payment.

On the other hand, accrual method would allow you to record all the financial transactions at the moment of taking place. In other words, you will be recording the transaction as soon as you receive the invoice from your vendor. At this point of time, money has not left your account. However, you will be recording it as a financial transaction.

You need to compare these two methods in detail. Then you will be able to figure out what’s the best method out of these two to proceed with.

What are the accounting tasks that you should focus on while you run an ecommerce business?

Running an ecommerce business doesn’t mean that you don’t have to work on your accounting. It provides you with a set of accounting related responsibilities. That’s why it is important to have a clear understanding about the accounting related tasks that you will have to do. When you focus on these tasks, you will be provided with the opportunity to keep the entire ecommerce business on track. It can help you to refrain from any unforeseen consequences from taking place as well.

Here are the accounting tasks that you will have to manage while running the ecommerce business. If you feel that you are not in a position to get these tasks done on your own, you can think about selecting accounting services for ecommerce.

  • Entering the transactions and categorizing them

You need to make sure that you are recording all the transactions when they are entering the business and leaving the business.

For example, assume that you are selling 100 books to a customer. Then you need to make sure that you are recording the revenue that you get for the transactions on the book. In other words, you will need to make sure that you are recording in some kind of a ledger. It can be a paper based ledger or an Excel file. Likewise, when you order a set of 1,000 books from a vendor, you need to go ahead and record the transaction as well.

It is possible for you to manually import all the details. You just need to copy all the details from the online bank account, which you are using to handle all the transactions. Or else, you can even think about using a comprehensive accounting software. It has the ability to import the transactions on behalf of you. You will be able to do this on a daily, weekly or a monthly basis. The frequency depends on how good you are doing with the ecommerce business.

When you get all the transactions into the books, you need to make sure that you are categorizing them. Those two categories would be incomes and expenses. You must clearly understand that accounting software that you use is not in a position to categorize all the transactions for you. It is up to you to make an effort manually to categorize them. In order to do this, you will need to hire a bookkeeper. If that’s not a possibility, you need to get hold of accounting services for ecommerce.

  • Categorizing all the chargebacks and returns in the books

Chargebacks and returns are quite unfortunate incidents that you will have to come across. However, you need to make sure that you are recording them in an appropriate manner as well. This can provide you with the opportunity to refrain from lots of issues that would take place.

Recording the returns is quite straightforward. Once you get a return, you will need to go ahead and note that down in your accounting records as an expense. You should be reducing it from the revenue. In addition to that, you need to mark it under the category “Returns and allowances”.

Likewise, chargebacks can also take place. Chargebacks happen when the credit card company requests you to return the funds that you have obtained from the credit card of a customer. This happens when the customer reports that you are running a fraudulent business to the credit card company. In most of the instances, chargebacks take place when the payments are made from stolen credit cards. Or else, the customers may forget transactions that they make as well. If the transaction is displayed in a wired name in the credit card statement, your customer will wonder what that is and will go ahead with a chargeback.

Money that you are withdrawing from the business at the time of a chargeback should be marked under “returns and allowances”. You should also keep in mind that all the chargebacks are associated with a processing fee. You will either be able to record that amount as a general business expense, or you can record that under a separate category as chargeback fees.

  • Reconciling the bank statements

You must make sure that your books and bank statements are matching up at all times. If the bank statements are not matching up with the books, you are trying to spend more money than what you have in your business. This can lead your business towards financial challenges.

In order to make sure that such financial challenges don’t take place, you are encouraged to think about working on the bank statement reconciliations in a monthly basis.

  • Generating the financial statements and analyzing them

One of the key objectives of recording your financial transactions is to determine how well your ecommerce business is doing. In order to do this, you will need to generate the financial statements and analyze them properly. Financial records that you have stored will provide a great overall assistance to you with this process. It is also recommended for you to take a look at the financial records on a monthly basis. This can provide you with the chance to refrain from facing unforeseen financial challenges. You can always be ready to face the challenges that comes on your way, because you have a clear understanding about this.

You are provided with the chance to go ahead and create your own financial statements as well. Or else, you will be able to use an accounting software to generate the financial statements automatically. In case if you are not taking care of them on your own, you can get the help of accounting services for ecommerce and get the job done.

Once you have all the financial statements, you can easily forecast the revenue that your business will make in the future. Along with that, you will be able to plan how to grow your ecommerce business in the future and take it to the next level. In addition to that, you will be able to make informed decisions to your business and make sure that you don’t run into any challenges.

In case if you are having a big business, the financial statements will clearly show how the different areas of your business are performing. You will be able to keep an eye on all the expenses through this method with ease. Hence, you are provided with the opportunity to look for effective methods to tighten the bottom line of your business.

The financial statements can provide many other benefits to you as well. For example, you can use them as the base and prepare your taxes. Or else, they can provide an excellent assistance to you at the time of securing a loan as well.

  • Paying the quarterly taxes

Your ecommerce business will have to go ahead and pay quarterly taxes depending on the scope of it. At the time of making quarterly tax payments, you need to estimate and see how much your business is going to earn for the given year. Along with that, you will be able to pay the taxes in every three months.

You don’t need to worry too much about the overpayments. That’s because you can get refunds for the overpayments that you make. In fact, it is better to overpay because underpayments can lead you towards penalties.

It is also important to make sure that you are making the payments in a timely manner. Otherwise, you will have to face penalties and your interests will be at risk. That’s the same reason on why you need to think about coming up with monthly tasks.

  • How to fill your sales tax

Depending on the revenue of your company and the state where you are registered as a business, you will be requested to make monthly, quarterly or annual sales taxes. The accounting services for ecommerce will be able to provide a great overall assistance to you during this process as well.

Filing the sales taxes is quite an extensive job to do. That’s because you should initially collect the sales tax and then have records on how much you collected. You will need to make sure that you are remitting the sales tax to the correct state as well. Therefore, you will have to spend a lot of time while you are working on the sales tax. That’s why it is a must to get the help of accounting services for ecommerce and overcome hassle associated with this process.

  • Maintaining a budget

In most of the instances, the ecommerce businesses can be categorized as seasonal businesses. Hence, budgeting is important. That’s because it can provide much-needed support to you with preparing for the feast and famine cycles.

While you are maintaining the budget, you will need to think about updating the budget calculator. In here, budget calculator refers to the spreadsheet where you have entered all the financial information on a weekly basis or a monthly basis. At the end of the specific period, you need to enter how much money you spent. Then you can determine how your budget should be adjusted accordingly.

You should also make sure that you are planning the inventory in an effective manner. This can help you to refrain from the negative effects that overstocking or understocking can help you with. If there is a risk of overstocking, you can go ahead with a clearance sale.

In the meantime, you should closely monitor the cash flow. You should be doing that on a weekly basis or a monthly basis. Then you can see how to cover up the expenses and make sure that you have enough money for it.

How to go ahead with record keeping in your ecommerce business

Record keeping is another important aspect, which you must focus on while managing the ecommerce business at all times. The accounting records that your business will have to deal with include the credit card statements, bank statements and receipts. These are just few examples and there can be many more.

In case if you are not properly keeping all the records in an organized manner, you will not be able to organize them in the books. That’s where you will come into problems during the audits. Due to the same reason, you need to make sure that you are keeping track of following records at all times.

  • Bills
  • Bank statements
  • Credit card statements
  • Receipts
  • Previous tax returns
  • Financial statements
  • Proof of payments
  • Transaction records linked with cryptocurrency wallets
  • Monthly PayPal statements
  • Shopify revenue records
  • 1099 and W2 forms
  • All the other documents that act as evidence to support a deduction, income or credit.

Getting the assistance of accounting services for ecommerce

When your ecommerce business is growing, it can get complex along with time. Hence, you will not be able to focus on all the accounting related work on your own. That’s where you should make sure that you are hiring a bookkeeper. Then you can simply allow the bookkeeper to take care of all the transactions. On the other hand, you will be able to make sure that you are not making any mistakes as well.

When it comes to hiring a bookkeeper, you are provided with two main options to consider.

  • Hiring a traditional bookkeeper

When you hire a traditional bookkeeper, you will be charged on an hourly basis. Hence, the amount of money you should pay to the bookkeeper would depend on the total number of transactions that you will have to categorize.

The bookkeeper that you hire will keep track of all the financial transactions done by your business and properly categorize them. You can hire a freelance bookkeeper for this, who has got previous experience with bookkeeping. The biggest drawback associated with this method is that your bookkeeper might not be available throughout 24 hours of the day, or even during certain periods to answer your questions.

  • Working with Upvue

Upvue would charge you for the offered services on a monthly basis. It will be a flat rate, which is calculated depending on the workload that you have.

When you go forward with this option, you will be able to receive the assistance of a team of bookkeepers. They will be doing all the bookkeeping work for you. In case if you have any questions related to the books, you will be able to manage them in a real time basis through Upvue.

All the bookkeeping services that you need and the accounting services that you need will be taken care of by Upvue. In addition to that, you can allow Upvue to take care of most of your banking transactions as well. This is the better option available for you to go ahead with. It is even a better approach than hiring an in-house accountant.


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