What is Ecommerce Bookkeeping? How to do it Right in 2024

bookkeeping for ecommerce business

Selling online requires you to process payments through an integrated payment provider or external software. There’s often a fee for each payment processed, which needs to be tracked and accounted for. Accounting rules and tax regulations differ by country and state, so staying up to date is crucial to your success. Even if accounting isn’t your strong point, there are a few simple guidelines to follow for managing a smooth ecommerce operation.

This is important because aside from being your most detailed financial report, an accurate cash flow statement can prevent overspending or running out of inventory. Effective bookkeeping is the foundation of financial success for e-commerce businesses. Embrace the power of accurate bookkeeping to unlock the full potential of your e-commerce venture and achieve long-term success.

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With expert bookkeeping solutions, business owners can focus on what they do best while ensuring the financial stability and sustainability of their companies. Overall, investing in robust bookkeeping practices is essential for any business looking to thrive in today’s competitive ecommerce bookkeeping landscape. When choosing the right ecommerce accounting software for your business, it’s important to carefully evaluate the features that your business demands. The most popular ecommerce accounting software options include QuickBooks Online, Xero, FreshBooks, and Zoho Books.

Given that the road is not always smooth in ecommerce accounting, it is important to be proactive in identifying and addressing certain problems you might face. Done properly, you might figure out what could be done to optimize your efficiency and maintain stability. Though it might seem complex at first, accrual accounting is essential as your business grows, especially if you’re dealing with inventory, planning for financing, or aiming for a loan.

Cash Flow Statement

With the retail method, you first need to determine your cost-to-retail ratio, which expresses your markup percentage. In the example above, imagine the items you purchased for $4 per unit are sold to your customers for $6.40 per unit. In addition to purchase and maintenance costs, you must track your actual sales as well as any inventory losses. Losses can result from theft, spoilage, damage, or other factors that make a piece of inventory unsellable. While of course you want to prevent inventory loss as much as possible, you should nevertheless be prepared to deal with it if and when it does occur.

We recommend Bookkeeper.com if you’re seeking both sales tax return filing and CFO advice. One of the key advantages of dropshipping is that it’s possible to start offering products to customers without physically handling inventory. Cloud accounting software such as QuickBooks Online helps you to keep track of all these figures, because it makes the data you need for cash flow statements readily available.

Ensuring Data Security and Compliance

There are accountants for ecommerce businesses ready to handle your accounting needs. That’s why most of them already determined the suitable accounting method for their business entity, whether cash-basis accounting or accrual accounting. From there, they can make sound financial decisions and maintain accurate financial reports. But remember, running a business is not always about revenue and income sales. You must know your expenses to create a profitable margin and price items accordingly.

  • Although creating reports is traditionally an accountant’s responsibility, many bookkeeping solutions include financial reporting tools.
  • If you’re manually tracking your inventory levels, you’re wasting your time.
  • However, if you can’t get to grips with it, it’s only going to lead to stress and possible errors in your system.
  • Come tax time, everything is organized and ready to go, so you don’t need to worry.

You can calculate COGS by adding the cost of your inventory to the purchases made during a specific time period. Subtract the cost of inventory left at the end of your timeframe to calculate your COGS. Sales tax is added to the retail price of every online sale and is settled at checkout. Try Shopify for free, and explore all the tools you need to start, run, and grow your business. You might also want to use CFO services from Lyfe Accounting to help you with your business needs.

With this list, you can compare and contrast the features of various ecommerce accounting software solutions. For instance, while QuickBooks Online offers multi-user support, Xero provides an excellent value-for-money option. FreshBooks is ideal for growing e-commerce businesses, and Zoho Books offers seamless integration for Zoho users. While it doesn’t offer many of the advanced tools that other online bookkeeping services provide, it’s easy to use and has a quick setup process.