In an e-commerce business, it becomes difficult to accurately handle your finances if your financial records are not in order. E-commerce accounting helps you keep your receivables and payables under control, along with other things.
However, in order to start with it, one must be aware of the various tasks that are performed in ecommerce accounting. The tasks can differ from industry to industry as well as on the size or scale of the business.
To keep it simple and meaningful, we have brought to you some of the common accounting tasks that are prominent for all.
Common Ecommerce Accounting Tasks
Accounting activities help in tracking the finances and to make better decisions for future growth. This means that it:
Categorizes the transactions
Categorizing transactions is an important accounting task because it tells about the income and expenses made. Recording the transactions without categorizing will not provide you any value as you cannot make decisions based on just simple record of transactions. Categorizing the transactions will make you aware of every penny earned and spent. It will provide you with better control over the cash flow situation of the business and you can make the decisions to improve the efficiency and productivity of the business.
A major component of e-commerce accounting is inventory management. You need to know the exact number of items you have at your disposal all the time. This is done by keeping track of your inventory. This task must never be overlooked because it gives you a clear picture of the available inventory in the business. There are two ways of tracking inventory:
- Periodic Tracking: It involves manually counting the inventory items in stock and noting the details like value and cost. The information can be stored on a computer or paper but in today’s scenario it should be in computer. You should do this at least once a month so that you are updated on the number of items sold and left.
- Perpetual Tracking: It involves the use of accounting software to constantly keep track of your inventory. The information is updated on how many items are sold or brought in, and you have a clear view of how much inventory is available with you at the given time.
Tracks inventory cash flow
It’s important to supervise and control their inventory cash flow. An inventory cash flow report tells you how much the inventory was paid along with the expenses incurred on products that are manufactured or brought in. It is important because it will reveal how effective your inventory efforts are and, also whether you need to look for another option or make any changes.
Maintains a budget
Budgeting is an essential task in e-commerce accounting. You can begin budgeting by reviewing your cash flow. One can easily do it by keeping track of how much you spend on the different things needed in business or if there are any returns or refunds and so on. For this, you can create a budget calculator so that you know where your money is going.
Maintains a proper recordkeeping
The crux of e-commerce accounting is dependent on how well you store the financial records of your business. Certain records must be kept for a few years, as required by law. It is up to you how you keep these records, but you must keep a soft copy and a hard copy (if required and possible) in a secure location.
Tracks return and chargebacks
It is one of the important tasks to keep track of customers returns and chargebacks. If you don’t organize them properly, your balance will differ. You need to keep the two separates as they are two different categories.
- Customer Returns: The initial transaction should be recorded as an expense and added to the list of accounts payable. When the product is returned to your company, it is important to get it recorded under the Returns and Allowances section as well as deducted from the revenue section.
- Chargebacks: Chargeback is referred to paying the money back when a customer files a complaint saying that there is a non-delivery or occurrence of fraud for the paid services/goods. Therefore, chargebacks are also recorded under the Returns and Allowances section. However, any additional fees incurred because of chargebacks should be recorded as business expenses.
Helps in paying taxes
There are two types of taxes that an e-business owner must pay: sales tax and income tax. You should be aware of both the taxes and that sales tax includes both local and state taxes. You also need to know which taxes are to be paid when and how much amount is to be paid for each tax. The sales tax must be paid either monthly, quarterly, or yearly, and income tax is generally paid yearly. Depending on the state in which your e-store is registered, you must contact the local tax administration to learn more about the e-commerce taxes you must pay. Furthermore, the taxes charged to each customer are determined by their shipping address. The sales tax can be entered either manually at the checkout time or with the help of a software system to calculate them for you. It completely depends on the ecommerce platform you’re using.
Analyzes financial statements
Analysis of financial statements is very important because it gives you a detailed overview of your business performance, how much your business has earned and spent and how many debts your business has etc. The three main statements you must analyze regularly are the cash flow statement, income statement, and balance sheet. These tell you the actual position of the business and that’s why must be analyzed regularly.
E-Commerce accounting requires a lot of effort and time including the tasks explained above. You should have automated accounting software to make your work easy and less time-consuming. It will help you create thorough reports, automate process, manage payroll, cash flow and inventory, reconcile bank statements, etc. It will really help you to these tasks easily and in less time. In case you are confused about the types of accounting you can use for your ecommerce business, read Types of Accounting and Business Accounts for Ecommerce.
Written by – Khushboo Batra
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