What Is eCommerce Accounting and Why Is It Important?

It helps you understand your online business’s cash flow, profitability and long-term sustainability. It also tracks customer returns, which may at times pose challenges if not recorded accurately. An ecommerce accounting system should accommodate customer returns and accurately record them https://kelleysbookkeeping.com/8-best-accounting-software-for-the-self-employed/ without throwing off your financial reports. The best way to manage inventory for ecommerce accounting is by using a real-time inventory management system that integrates with your accounting software. Sales in ecommerce are recorded when a customer makes a purchase from your online store.

• Once you’ve mastered the basics of accounting, you can move onto more complex topics, like financial forecasting, to help you devise a realistic growth plan.
• It might not work for such companies because it doesn’t recognize future account receivables or accounts payables.
• With the transition to primarily online sales, cash transactions are becoming a thing of the past.
• They work to ensure the accuracy and completeness of financial records, and provide insights into the financial health of the business.
• It happens in the sales channels and payment processors, and what hits the bank account is only a summary of what’s going on there.
• Shipping two hefty textbooks isn’t cheap, and it ends up costing $25 to ship them.

You’ll want to find a freelance bookkeeper who has experience working with ecommerce businesses like yours. The cash method of accounting lets you record transactions the moment money enters or leaves your business. For instance, when a vendor invoices you, you record the expense only after you send them their money. FinHub is here to help you gain clarity with consolidated data, real-time cash flow, and accrual P&L so you can make smarter decisions. This Financial Hub comes on a straightforward dashboard to combine all the tools and accounts you’re already using – designed to complement, not replace, your existing accounting system. It’s crucial to have a deep understanding of your numbers to grow your business.

Differences between eCommerce accounting and business accounting

If your business has big (or slow) months or weeks, your financial statements will show you. They’ll also help you keep an eye on expenses, and look for ways to tighten up your bottom line. For ecommerce companies that use accrual accounting, however, bank reconciliations are more in-depth. That’s because you’re going through your statements and the bank’s to make sure that every uncleared transaction you recorded actually went through. For an ecommerce seller, the income statement helps to track revenues from sales, costs of goods sold (COGS), operating expenses, tax expenses, and net income. These include different transaction fees for different payment methods and varying processing times.

After creating our initial forecast, we need to review and adjust it regularly to ensure accuracy. For example, if the ecommerce business experiences a surge in sales due to a seasonal event, we may need to adjust our sales forecast accordingly. Similarly, if the business grows and incurs unexpected expenses, we may need to adjust our cash flow forecast.

Must-Know Financial Metrics for Accounting for Ecommerce

The Cost of Goods Sold, or COGS, is a vital metric for any ecommerce business. It refers to the direct costs incurred in producing the goods sold by a company. This includes the cost of materials and direct labor costs used to produce the goods. Ecommerce businesses How Much Do Bookkeeping Services Cost for Small Businesses! generate vast amounts of data, and an ecommerce accountant must be adept at turning this data into actionable insights. Stay on top of daily transactions, monitor your cash flow, review your financial reports, and regularly reconcile your accounts.

These reports let you identify and explain any discrepancies between budgetary items and accounts. Essentially, these reports help you track whether your forecasting and budgets match up with your actual spending, as well as help maintain inventory and check payroll at year-end. It costs you $1000 to buy the goods, $1000 to store them, $1000 to deliver them, and $1000 to pay your staffing costs. Overhead encompasses everything related to your business that isn’t directly related to your products. This includes things like salaries, space rental costs, office supplies, software and service subscriptions, and insurance costs. We’ve talked before about how important it is to hire an accounting firm that specializes in e-commerce.