You are not operating your business online just to juggle bookkeeping and accounts books. You strive to sell your products to a more extensive customer base, provide them with a better customer experience, and generate enough profits.
However, you can’t ignore that bookkeeping for ecommerce is crucial to keeping your accounts in good shape and determining your online business’s financial performance.
E-commerce bookkeeping for small businesses is about recording and managing financial transactions in a given period, from purchases and sales to payments.
A professional bookkeeper will track all your business costs and income to help you make informed financial decisions.
Even though you have prior experience with bookkeeping, you might not know some vital nuances of e-commerce bookkeeping. Don’t worry! This article here is for your help. Here, you can learn about the intricacies of e-commerce bookkeeping for small businesses.
E-commerce Platforms and Bookkeeping
In this digital age, various e-commerce platforms are available to sell products and services. No matter what e-commerce platform you choose to start your business on, you will need to balance your account books while keeping track of incomes, expenses, and any relevant taxes.
Although many ecommerce platforms offer features to aid in keeping track of vital bookkeeping-related information, such as inventory or sales, they can’t help track tax obligations and file them.
Moreover, almost every e-commerce platform charges merchant fees that a bookkeeper needs to track.
Fortunately, the technologically advanced market presents many bookkeeping software you can integrate with e-commerce platforms to easily track and manage your sales and expenses.
Best Practices for Bookkeeping for E-commerce
Bookkeeping for e-commerce is an integral part of small businesses, no matter what platform you choose. The following listed are some best practices you should follow for streamlined e-commerce bookkeeping:
Integrate your online store with bookkeeping software
Most e-commerce platforms allow business owners to integrate their online stores with dedicated bookkeeping software or provide access to plug-ins to assist in sales and expense tracking.
Aligning your bookkeeping software and online store will help track tax obligations, file taxes, or remit sales tax.
Set up tax locations
Setting up the tax locations in your e-commerce store will let the platform know where taxes need to be added to the sales. It will aid in automating orders and ensuring that you are collecting sales taxes when and where required.
Manage returns and chargebacks
Ask your bookkeeper to regularly track and manage the returns and chargebacks, as they can significantly impact your bookkeeping accounts.
Reconcile your accounts
Almost every e-commerce platform keeps a downloadable log of all your sales for a given period. Your bookkeeper should regularly download these reports and review and reconcile them regularly.
Keep track of external expenses
No ecommerce platform will track your external expenses, such as advertising, manufacturing, or staff costs. So, you can seek Bookkeeping services for small business to track and record these external expenses.
Automate the workflow
Automating necessary workflows will make the bookkeeping process much easier and more efficient.
Sales Tax and E-commerce Bookkeeping
You should know that sales tax is added to the retail price of every item you sell online and is settled at checkout.
You must collect sales tax when operating the business online in any state of the U.S. The presence of your ecommerce business in a state is called nexus, and it’s a must to collect sales tax for each nexus you have.
Follow these tips to handle sales tax in e-commerce bookkeeping:
- Identify where your nexus is: Your online business will have a presence in the state where you reside, have employees, store inventory, or sell products. In addition, you will have a nexus in the state if you hit a threshold of sales to customers within that state. Some states in the U.S. will also have regional sales tax for out-of-state sellers.
- Determine the taxable products: Different states specify different taxation levels for products. Your bookkeepers should know which products are taxable in which state and by how much.
- Register your business: You must register your ecommerce business for a sales tax permit in the state where you have economic nexus. Sometimes, business owners might also need to purchase a business permit to sell products in that state.
- Collect sales tax: You should set up your E-commerce platform to automatically apply and add sales tax to each purchase at checkout.
- File a return: Ask your bookkeeper to create and file a tax return before the deadline in the U.S. states that mandate e-commerce businesses to collect sales tax.
Inventory Management and Ecommerce Bookkeeping
Inventory management is a critical part of the e-commerce bookkeeping process, as inventory is considered an asset valuable to your business.
Bookkeepers track your inventory monthly or quarterly to keep it up to date. It becomes especially essential when storing inventory in multiple locations or processing returns.
Inventory is logged in the ecommerce bookkeeping depending on the cost of goods sold (COGS), and bookkeepers can calculate using first in, first out (FIFO), last in, first out (LIFO), average cost valuation, or any other inventory valuation method.
Financial Statements and E-commerce Bookkeeping
Preparing financial statements is the critical responsibility of professionals offering bookkeeping for e-commerce. These statements provide a 360-degree view of your online business’s revenue, expenses, debt, and profitability.
Reviewing the profit and loss statement, cash flow statement, balance sheet, or any other financial statement can help you understand your e-commerce business’s financial health.
You can determine how much money is available to invest in your company, how much you can pay your investors and yourself, and other accounts payable.
Wrapping up it all!
E-commerce bookkeeping is the ultimate way to track, store, manage, and organize financial transactions. It will provide valuable insights into your company’s debits, credits, and cash flow.
Moreover, accountants can turn the financial information collected and stored by bookkeepers into vital financial statements to help entrepreneurs determine their business’ financial performance.
However, e-commerce bookkeeping can be complicated for a regular business owner. You can streamline it by seeking premium bookkeeping services for small business.
