The continuous growth of the ecommerce market makes this industry the best place for any entrepreneur. It is projected that by 2027, it will hit $7.9 trillion. This also means that competition will increase as well. So therefore to tap into this growing market and emerge a winner you must have a strong financial structure.

However, all these can only be possible if you focus on and do bookkeeping for ecommerce correctly. To thrive in this highly competitive sector, ecommerce bookkeeping has become a necessary practice for any online business.

In this blog post, we are going to delve into what exactly ecommerce bookkeeping encompasses, provide examples, compare it with traditional accounting practices, point out frequent mistakes and lastly give some best practices which can guide you in 2024.

What is Bookkeeping for E-commerce?

Ecommerce bookkeeping implies keeping track of everything about the finance of the ecommerce business– from sales and costs to inventories and taxes. It ensures accurate records and smooth running.

Bookkeeping for ecommerce allows businesses to adapt to the digital sales market, link different sales platforms, accept digital payments, and understand different regional and international tax rules.

Bookkeeping For Ecommerce Examples

Let’s take some examples to know about ecommerce bookkeeping through people’s experiences:

Recording and Categorizing Transactions

Every transaction taking place within an organization is recorded systematically by e-commerce accounting and bookkeeping services.

This may involve exporting transaction data into ecommerce accounting software or entering transactions into spreadsheets.

Every single transaction has its own nature and objective, such as revenue, income, expenses, or owner equity. So, these should be segregated during the bookkeeping process. 

Inventory Management

Keeping track of inventory levels helps prevent overstocking or stockouts thus ensuring optimum stock levels. Ecommerce bookkeeping helps monitor COGS and calculate inventory turnover rates, thus contributing towards efficient inventory management.

Tracking Payment Processing Fees

Often payment processors like Stripe or PayPal charge fees on e-commerce businesses. You cannot get accurate financial statements without recording these payments.

Bank Account Reconciliation

All recorded transactions should be cross checked with bank account statements by your hired e-commerce bookkeeping accounting services provider. It ensures that books reflect company financial dealings accurately as they took place.

Sales Tax Compliance

Based on the location of customers, e-commerce businesses have to charge and remit sales tax. This is fundamental in ensuring that correct procedures are followed when accounting for sales taxes.

E-commerce Bookkeeping Vs. Accounting

Bookkeeping and accounting are both closely related, but they have different purposes:

Bookkeeping

Refers to the process of recording daily transactions and maintaining accurate financial records. Bookkeeping for ecommerce is the basis upon which accounting is built.

Accounting

On the other hand, entails interpreting, classifying, analyzing, reporting and summarizing financial data. Accountants use bookkeeper’s data to generate financial statements, conduct audits, and provide strategic financial advice.

In simple terms, while bookkeeping involves collecting data, accounting entails processing or analyzing it.

Common Mistakes in Bookkeeping For Ecommerce

Even with good intentions, ecommerce businesses can go wrong in their bookkeeping practices. Here are some typical missteps for you to avoid:

Ignoring Reconciliation

Failure to reconcile bank statements with recorded finances can result in discrepancies, plus missed transactions. Bookkeeping services for small business use automation to ensure accurate bank statement reconciliation.

Record-Keeping Inconsistency

The problem of inaccurate/inconsistent records makes it difficult to track true financial performance.

Sales Tax Negligence

A mismanagement of sales tax obligations can lead to heavy fines and legal issues.

Overlooking Costs

Small expenses that add up quickly can distort your picture of finance if not put into consideration. When you outsource bookkeeping for small business they help to record even the tiniest transitions and present it to you through daily records and dashboards. 

Mixing Private & Business Finances

Combining personal finances with those used in a business leads to confusion as well as incorrect financial reporting.

How is Bookkeeping for Ecommerce Different From Traditional Bookkeeping?

Ecommerce bookkeeping differs from traditional bookkeeping in a number of key ways, such as:

Volume and Frequency of Transactions

Physical retail stores often deal with fewer transactions compared to online businesses. Therefore, ecommerce bookkeeping requires frequent updating of the financial books. 

Multiple Sales Channels

Ecommerce businesses sell via various platforms like Amazon, eBay, or Shopify, thus requiring sales tracking across several channels.

Global Sales and Currency Conversion

When selling internationally one has to handle different currencies and exchange rates making. This kind of financial task is more complicated for bookkeepers. Therefore when you hire an accounting service provider for your ecommerce business ensure they have relevant experience. 

Inventory Management

It requires real-time inventory tracking, which may be more difficult than keeping stock in a physical store.

Sales Tax Complexity

Ecommerce businesses have to operate under different sales tax legislations across regions making the process difficult compared to that of purely local businesses.

Best Practices For eCommerce Bookkeeping

You can get accurate and efficient ecommerce bookkeeping by observing these best practices:

Use Accounting Software

Buy accounting software that’s perfect for your ecommerce businesses. Professionals from accounting and bookkeeping services can help you pick the right one. Popular ones include QuickBooks, Xero, and FreshBooks. These tools can save you from numerous bookkeeping tasks by automating them.

Hire a Professional

Think about engaging a professional bookkeeper or an accountant who has specialized in e-commerce business operations. They have special insights that may prove invaluable to you besides keeping you compliant with financial regulations.

Regular Reconciliation

Ensure accuracy by reconciling your bank statements, payment processor reports, and sales records on a regular basis. Experts from bookkeeping services for small business can help you with these administrative tasks and save you time. 

Categorize Transactions

To give an overview of how your business is doing financially, it’s important to correctly categorize income and expenses. It also simplifies tax preparation.

Stay Updated on Sales Tax Laws

Be updated with any changes in sales tax regulations across different regions where you sell your products. Use tax automation software that assures correct calculation and remittance of sales taxes. Many entrepreneurs outsource bookkeeping for small business to manage these tasks. 

Conclusion

Managing an online store requires proper ecommerce bookkeeping in order to have the right financial information at any given time. A good understanding of the intricacies of ecommerce bookkeeping, avoiding these common mistakes, and observing the best practices will set your business on a strong financial footing. Whether you have been in ecommerce for a long time or are just starting out, getting it right with your books for 2024 will determine how far your business will go and at Elevar accounting we can help you with that.