Best Accounting Practices for eCommerce Business

E-commerce business has experienced a boost over the past decade, especially during pandemics when physical stores were advised to remain close. Amid the boost of online eCommerce business, there was the challenge faced by such eCommerce businesses as they have no back-office support such as accounting. So, there was reluctance to immense eCommerce sales as well.

Ecommerce accounting practices are critical for all online stores, as eCommerce is known for having a huge amount of transactions daily. Therefore it is vital to keep track of accounting records in order to manage expenses and income correctly and to have control over cash flow.

Different sale and payment channels:

In eCommerce businesses the sale is not through one channel normally, it is through different channels such as it may be through Amazon, Shopify, eBay, etc. Also, the payment received is also through different channels such as PayPal, Amazon pay, Google pay, stripe, etc.

Expenses in foreign currencies:

In an eCommerce business, you have to deal with a lot of expenses in foreign currency, it is not managed properly it may end up you bearing accounting loss instead of profit.

Suitable accounting principle for eCommerce business;

Hence, in such past growing industry and rapidly changing technology you must have best practices applied in order to comply with standards and make your eCommerce business profitable. Here are the best practices you can follow to make your eCommerce accounting easy.

  1. Selecting right Accounting software: 

There is various online accounting software available in the market such as QuickBooks Online, and Xero but you have to select one that is suitable for your eCommerce business practices. The software you will choose must have the option of integration option. In order to integrate business bank accounts, credit cards, and your online stores, so you can focus on growing your eCommerce business.

  1. Integrate Accounting software with your online store:

One of the most important things eCommerce entrepreneurs can do is to connect your accounting software with their online stores such as Amazon and Shopify. This will help you automate things and not manually add things from reports to your accounting software. It will save a lot of time so could shift your focus on making your eCommerce business profitable.

The only thing left is you only have to categorize the expenses and income to the relevant account head. So you can track when money is leaving and receiving into your account.

  1. Categorizing transactions and reconciling accounts regularly:

Once you have integrated your online store, bank, and credit cards with your accounting software then you have to regularly categorize/ classify transactions into relevant heads so you can keep track of how many expenses you have made for the particular head. You can find out which expense is your main expense and can make a strategy to optimize it.

Secondly, while having a lot of transactions for eCommerce business there must be errors in or reversal of transactions. So, you need to regularly reconcile your accounts. It will make sure that the transaction in your bank and other statements are the same as in your accounting software.

When you do reconciliation you can find the differences in statements and data in your accounting software, for whatever reason, it is wither due to error, double counting or reversal, etc. so you can correct any error and double counting by self-help or you can hire a professional bookkeeper and can make your eCommerce accounting record correct.

  1. Cost of sale and inventory management:

When you are selling through the different online stores it becomes difficult to estimate which inventory item is to store and in what quantity, but it is vital for eCommerce businesses to have the most demanded and trending inventory in stock. So, you can never be short on the stock in a critical time.

Cost of goods sold (COGS) is important in accounting for every business. Similarly, it is vital for eCommerce accounting as well to find profitability and margin. It helps find gross profit and make correct financial statements or financial reports.

  1. Provision for returns:

Some eCommerce platforms accept returns such as Amazon. If you’re selling on such platforms you must have provision for returns and furthermore, you have to categorize such returns into, partial damage, sellable, shipping damage, and customer damage.

  1. Managing time differences between payment and account receivable:

Payment is received for the online stores through the different platforms and it is clear at various points not exactly as sales are made. So you have to track that in statements and sell reports you have to match t correctly. In order to reconcile your books at a particular time is a technical exercise so you need a professional bookkeeper/accountant for it.

Not all sales are made on a cash basis most of the sales of eCommerce businesses are made on a credit basis. So, you need to manage account receivables in order to make sure you are receiving payment that is due to the customer.

  1. Other expenses tracking:

The only expense for an eCommerce business is not only the purchases that you made on receiving goods to sell in the ordinary course of business but there are also expenses that are incurred while running an eCommerce business. One has to make sure to record it in their books correctly as it is vital for profit and loss and cash flows.

These expenses may be but are not limited to it;

  1. Utility 

  2. Rent

  3. Software and subscription

  4. Interest on financing

  5. Taxes

  6. Salaries

  7. Contractor payment