When you ask any eCommerce businessman, what is their least favorite part of their task?- most of them will answer “accounting” (though there are many people who love accounting). About 40% of the small businesses handle their accounts on their own without any help. But as the eCommerce business grows, the finances will become more complicated.
The sales, returns, banking fees, supplier payments and so on – all in-and-out money movements must be categorized, analyzed and reported properly to pay the tax. Without the proper accounting system, you will be overwhelmed with the financial data you have collected till now. Finance needs one’s complete attention since accounting is important. Hence, let’s know the complete details here.
Bookkeeping Vs eCommerce accounting:
Bookkeeping is the starting point for the accounting practice in which a neat record of financial transactions and documents will be maintained. The purpose of this bookkeeping is to describe and organize the current state of finance. Key tasks in the bookkeeping include:
- Categorizing the transactions
- Account payable and receivables management
- Preparing balance sheet
- Account reconciliation
- Payroll management
On the other hand, accounting is the practice of analyzing all the financial records which are produced by the bookkeeper and creating a financial report to understand the current finance and future financial plan. The purpose of accounting is to get complete financial knowledge to make smarter decisions. Key tasks in accounting include:
- Financial information audits
- Preparation of the entries
- Tax planning
- Financial forecasting
- Risk analysis
- Preparation of the financial statements and reports
An accountant will carefully analyze the company’s finances and find the best way to cut down the costs, prepare the tax reports and help in business growth. It is essential to understand that you will not be able to do good accounting unless you know accurate bookkeeping and it’s harder to do proper bookkeeping if you do not have an efficient accounting process.
Everything you should know about bookkeeping for eCommerce companies:
- Recording transactions–The important aspect of bookkeeping is recording all the transactions that the business makes. This includes the transactions where the money enters or leaves the company. In the eCommerce business, the customer may buy the product at any time hence, the transactions must be recorded at any time.
The types of transactions that should be kept on track are:
- Expense – Money that is paid by the company to keep the business running smoothly
- Revenue – Money that is collected by the company from the sales
- Assets – Anything that the company owns such as vehicles, properties, cash, equipment and a few more
- Returns and charge backs – Money that is returned to the customer or the credit card company since the product has been returned or fraudulent credit card behavior
- Liabilities – Any outstanding balance of loan the company has taken
- Equity – Money that has been invested in the company which is not expected to be paid back.
Why should you record all these transactions?
Every single transaction is recorded to accurately file the tax. Every business is expected to pay proper tax to the authorities and that is why you should keep in track of all the transactions. Another main reason why you should record the transactions is to determine the profit of the company. Also, you will be able to find the financial health of the business when you do it properly.
- Returns and charge backs:
When you run eCommerce businesses you have to deal with the returns and charge backs. A return is when the customer wishes to return the product and get a complete or partial refund. Every eCommerce company has a different refund policy, hence it’s based on your company to decide the refund policy.
If the money is paid to the customer most of them record it as an expense but you can record it as returns and charge backs. But it should be subtracted from the revenue. Also, make sure that you record whether the product is returned to the inventory or just discarded.
A charge back is when the credit card company asks to return the money to the customer’s credit card because it is a fraudulent payment. Charge backs usually come with the extra processing fee that you have to pay to the credit card company. You can record this transaction also under returns and chargebacks and also subtract it from the revenue (but only subtract the amount paid to the customer and not the processing fees).
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By the end of this Strategy Session, you will have a clear understanding of the next steps you can take for your business to take advantage of the tax deductions you are missing out on.
This return and chargeback will not affect your business unless you have too many of it. This information will ultimately help you in assisting the quality of the products which you sell.
- Tracking inventory – While you run an eCommerce business you should keep in track of the inventory which is monitoring all the products that are in stock and available for the customers to buy.
- Preparation of financial statements – The task of preparing all the financial statements is essential for all businesses regardless of their size. These statements are generally the end result of the bookkeeping process. It will summarize all the financial information about the company and help you make smarter financial decisions.
There are four types of statements that are generally – income statement, cash flow statement, balance sheet and shareholder’s equity statement.
The income statement summarizes:
- Cost of goods sold – How much amount it costs to produce or buy a single product that you sell
- Operating cost – Here it includes all the expenses that the company pays to keep the business running smoothly. It includes the office rent, monthly wages, utilities and many more.
- Gross profit – It says how much the company has profited from the sales and it should be subtracted from the total amount for which goods are sold. This will now help you get the company’s gross profit.
- Net profit – It is obtained by subtracting the operating cost from the gross profit and this gives the company’s net profit.
This income statement will provide only a short-term image of the company’s financial health while you will need the company’s balance sheet for a long-term image.
What’s the best way for eCommerce bookkeeping?
All the bookkeeping and accounting tasks look like a lot of work, doesn’t it? Yes, it’s a lot of work. But you can easily handle it by hiring the services offered by the eCommerce accounting agency. In this digital age, it is easier for businesses to handle finance easily. The agency will offer the best software that is built for comprehensive bookkeeping for the eCommerce business.
Since the tools are digital-based, it is easy to integrate with the eCommerce site and get the reports to look at the performance of the company. Hence it is cheaper to hire the services of the agency and efficiently handle the finance of the company.
Don’t hesitate to use the best bookkeeping for eCommerce companies to stay organized. You can get the report to analyze the finance and develop the business strategies that will help in running the business smoothly. You can also stay on top of others making the regular tax payments and ensure that all the business transactions are recorded accurately.
The experts in the agency will handle the accounting tasks and help you cut down the extra costs to boost the profit.