Ecommerce Accounting: The Full Guide 2023

accounting for ecommerce

E-Commerce accounting throws light on the finances of your online business. From the costs of goods sold to the net profit margins, you’ll find useful information and draw insights from the numbers on the books. These systems can help reconcile and manage your sales, expenses, and inventory. Here’s a list of the top small business accounting software you can choose for your ecommerce business. Accounting providers exist in various forms—ranging from traditional accounting firms to accounting software platforms. But before you get started with a vendor, it’s essential to decide on an accounting method.

accounting for ecommerce

As an ecommerce businessperson, you need to have a clear understanding of both bookkeeping and accounting. Bookkeeping involves recording and organizing financial transactions, such as sales, purchases, and expenses, into a systematic and comprehensive manner. Ecommerce accounting involves recording, organizing, and managing all financial data and transactions for an ecommerce company.

Differences between eCommerce accounting and business accounting

“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. Traditional businesses may deal with a handful of transactions daily, whereas ecommerce businesses can have hundreds or even thousands of transactions each day. This high volume of transactions makes the bookkeeping process in accounting for ecommerce companies more complex. Cash flow statements work with income statements and balance sheets to reveal a full picture of a company’s financial health. Potential investors or buyers also use them to evaluate whether or not a business is a worthwhile investment. Ecommerce accounting also includes running financial reports such as profit and loss statements and cash flow statements.

What is the income statement of e commerce?

The income statement shows how your business is doing over a certain time frame, such as a month, quarter or year. You get to see your direct revenues in the first section at the top. This doesn't include interest or other non-direct income.

We’ve put together a guide to help you better understand eCommerce merchant accounts, account tracking, and accounting and payment processing software options. Once you start your small eCommerce business, the objective after survival is always growth. A good accounting system will help you spot strengths in your products and services.

Conducting Financial Analysis and Ratio Analysis

It will also help you identify your biggest expenditures and pinpoint opportunities to reduce costs. As the end of the financial year approaches, taxes are a high priority for small businesses. Improper reporting can lead to penalties and expenses that a startup can’t afford.

However, you’ll want to consider what numbering system will allow you to add new accounts if your organisation were to scale in the future. If you’re new to accounting, cost of goods sold (COGS) is an important concept to 10 Benefits of Having Professional Bookkeeping Services for a Stress-Free Tax Season Careers grasp. This is how much it costs you to sell items, and you need this figure to work out your profit margin. If you’re one of the 41% of small eCommerce business owners who do their own accounts, this article is for you.

Cost of goods sold

You can also customize your dashboard to review all your ecommerce metrics at once. Knowing how to read an income statement is a must for every entrepreneur and startup founder. Your eCommerce accounting income statement will tell you how much revenue you’re generating. Larger businesses need a solution that can account for payables and receivables where money hasn’t changed hands. In this method, you record transactions as they’re agreed upon, regardless of money being received/paid.

Keep in mind that any freelancer you hire is just one individual, with multiple clients. Your bookkeeper may not be available 24/7 to answer your questions, and you could face occasional downtime due to illness, personal leave, or holidays.