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Accounting for E-Commerce 101

Accounting for E-Commerce 101

Last Updated:  
March 18, 2024

The journey to a fully oiled, successful online business is chock-full of milestones. From the day your product is market-ready to the day your website goes live to the day you make your first dollar, every step along the way is full of excitement.

Sale after sale, dollar after dollar, the excitement continues. But nothing can rain on your money-makin’ parade like trying to keep track – and make sense of – all the numbers. Or worse – tracking and reporting the numbers incorrectly.

Accounting For E-commerce Content

That’s where proper accounting for e-commerce businesses comes in. It’s crucial to have a deep understanding of your numbers to grow your business. Accounting for e-commerce may not be the most attractive part of growing your biz, but it’s a necessity.

Let’s dive into understanding the basics, plus some tools you can use to make accounting simpler to track, control, and understand.

What is E-Commerce Accounting?

E-commerce accounting is the act of gathering, organizing, evaluating, and reporting your business’s financial data.

However, e-commerce accounting goes beyond tasks like bookkeeping, managing inventory, and filing taxes. It also includes bigger-picture items like creating and reviewing reports that help grow your business. “Think of accounting as the process that lets you review your business’s financial health, involving reports, taxes, and figures for growth planning,” says Fintech Start-up Osome.

Accounting For E-commerce Content

Not unlike their brick-and-mortar counterparts, online businesses demand the careful organization of all their financial puzzle pieces. However, e-commerce accounting has its own unique rules and challenges due to the realities of the online shopping industry.

Unique Rules of E-commerce Accounting

Inventory: Online businesses see higher volumes of transactions because they’re open 24/7. Inventory can be a mess to report accurately, between items in production, final products being shipped to you, and even the items sitting for days in a customer’s cart.

Sales tax: Determining when to charge sales tax to customers can be a big pain point for e-commerce vendors because the rules vary by state. To ensure you’re meeting sales tax compliance, picking e-commerce accounting software that can track and file correctly may alleviate some of the headaches (more on that later).

International transactions: E-commerce businesses attract customers from all over the world. And with foreign transactions come foreign transaction fees. If you’re doing the accounting for your e-commerce business, you’ll need to consider the most cost-effective ways to allow non-U.S. customers to purchase from your site.

Cybersecurity and Avoiding Data Breaches

Did you know cybersecurity is often cited as the number one hurdle for e-commerce businesses? Hackers are looking for vulnerabilities in e-commerce websites and their accounting programs.

Accounting For E-commerce Content

Protecting your customer’s data, as well as your own company’s financial standing, is worth being proactive to avoid the colossal headache of a data breach, no matter the size of your company. Considering there were roughly 30,000 cyberattacks daily in 2021, shield your company from the financial impact along with the unfortunate effect it can have on a business’ reputation.

To safeguard yourself and your company from online scams and cyberattacks, here are a few tips:

  • If your accounting software is cloud-based, never log in on public WiFi
  • Know the different ways your online platforms can be attacked and how to mitigate risks
  • Empower employees by training them on how to identify certain threats, like phishing scams via email
  • Use state and federal laws to protect you (and inform your own accounting procedures and standards)

The Two Methods of E-Commerce Accounting, and Which You Should Use

Before you can choose an accounting firm or software to support your business, you’ll need to settle on an accounting method. Don’t panic! It’s entirely up to you, but there’s one method that’s the most friendly to beginners.

Cash Basis: Cash basis accounting keeps things simple, especially if you’re new to managing a business’ finances. Whenever there’s a change to your bank account, that populates a new record in your accounting system. A sale is tracked if there’s money being added in, and likewise, if cash is debited, that transaction is marked as an expense.

The only drawback is that you can’t account for items like future transactions, a purchase order that hasn’t been paid yet, or customers or invoices that haven’t been billed. It’s only a reflection of the physical money moving in and out of your company, leaving a need to project sales and plan ahead via the expertise of an accountant or additional reporting software.

Accrual Accounting: If you feel like you have your bearings with e-commerce accounting or are able to hire experts to manage it all, the more involved method is accrual accounting. Accrual accounting captures a more accurate representation of your business at any given time, though your bank account won’t always reflect it. This method is more commonly used by larger companies because they have the manpower, tools, and knowledge to finely review all the details that accrual accounting requires.

Remember: if you change your mind and want to switch, you have to file official paperwork with the IRS. No one takes that lightly.

Choosing Your E-commerce Accounting Software

Reliable business accounting software and bookkeeping practices are must-haves for any online business owner. While good old Excel or paper filings may have gotten you started, your balance sheet will inevitably become more complicated. So, you don’t want to rely on manual methods of accounting for your e-commerce business for too long.

Accounting For E-commerce Content

Making a shift from a spreadsheet might be rocky at first, but it will pay off – quite literally. “With proper e-commerce accounting, entrepreneurs can develop strategies to boost their profits while also ensuring they are following all pertinent laws and regulations,” says the Online Master of Accountancy Department at Ohio University.

Luckily, there are many tools available to streamline accounting for e-commerce businesses. Here are a few places to start:

  • Quickbooks: A full-featured business and financial management suite and the #1 cloud accounting solution for small to medium-sized businesses.
  • Xero: An online accounting software platform for small businesses; a fan favorite and an affordable option for growing businesses.
  • Oracle Netsuite: A human resource and payroll management solutions to manage HR, payroll, financials, and more.

While there is no shame in hiring an accountant who can start the process for you, explain the inner workings, and act as a consultant as your business grows, below are a few things to consider when searching for the accounting software best suited for your business:

  • Reporting: Decide what level of reporting you’d like from your accounting software. Some software like Quickbooks offers almost 90 different types of reports, but others might provide less than 10.
  • Ease of Use: Research how user-friendly the software is. It doesn’t matter if the program can spit out stacks of reports if you can’t generate them properly or understand them.
  • Documentation: Finding software that has robust tutorials, help articles, and customer support should be a high priority if this is new to you.
  • Easy tracking: Online businesses have a lot of moving inventory. Finding accounting software that tracks it effortlessly will be a major boon to your company.
  • Free trials: Having first-hand experience using the software for a month or more will help inform your decision (and usually, you’ll know before the 30 days is up if the software will work for you).
  • Security: Find accounting software that prioritizes the security of your company and all its customers, with features like two-factor authorization and audit-trail functionality.
  • Integrability: To make life easier for you, find e-commerce accounting software that integrates seamlessly with the tools you’re already using. If your business already uses a popular platform like Shopify, you should have a wide range of accounting software to choose from.

How FinHub Makes Ecommerce Accounting Easier

Already got a handful of tools to do your e-commerce accounting for you… but still feeling overwhelmed? Add on FinHub by Triple Whale.

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While many of the popular tools out there are robust and effective, they were designed for accountants, not for business operators.  That is, they are record-keeping tools, not decision-making tools.  

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. The best part? 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.

Buying online is so, so easy. So why can’t accounting for e-commerce be just as simple? Start with some of these guidelines and tips to build out your tech stack so you’re running smoothly from the ground up. And if you are ready to go from just tracking to growth planning, give Triple Whale a try.

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