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You must keep detailed records to know how your business is working financially, enabling you to draw up figures and real time financial information when required. Keeping up with precise financial reports keeps your business lawful. It empowers you to report genuine and exact figures when tax time rolls around.
From working out taxes on online-based deals, inventory management, to shipping fees, running an online store accompanies various difficulties and considerations. Your bookkeeping system should have the option to keep up. For this sole reason, Legend Financial has complied with this ultimate guide on e-commerce bookkeeping system.
What is eCommerce Bookkeeping?
The bookkeeping process is all about keeping track of an individual’s or organization’s cash inflow, outflow, other transactions. It is also known commonly as “keeping the records.” In a more sophisticated way, bookkeeping is the record-keeping of any transaction, whether done by word of mouth or written in the form of an agreement.
Bookkeeping includes the records of gross profit, gross margin, shipping costs, other merchant fees, and other financial records. The primary purpose of bookkeeping solution is to ensure the financial records are up to date and correct to avoid any problems in future transactions. An efficient bookkeeping process of documenting and organising adds to the value.
There are two types of ecommerce bookkeeping in any business. Single entry bookkeeping records every transaction once. Every expense, sale, and purchase are documented once, which is helpful in small e commerce platforms that do not have extensive inventory levels. Single entry bookkeeping is useful for those individuals that do not have more than two business transactions a month.
Double entry accounting records every transaction twice, both as debit and credit. It is rather complicated but minimizes the chances of mistakes in financial records in large e commerce businesses.
Importance and Benefits of Bookkeeping Service
The following are some of the benefits of bookkeeping, whether it is done for oneself or for business owners:
- Bookkeeping is a detailed record of transactions, i.e., every financial record is present in detail.
- Through efficient bookkeeping solution, one can easily predict the upcoming tax amount and be compliant with the tax laws overall.
- An individual or a business can have improved relations with other business owners and investors through excellent ecommerce bookkeeping.
- Accuracy is critical in financial matters. Bookkeeping ensures that all the data is accurate and efficient.
- Bookkeeping service ensures efficient management of records and human error-free transactions.
- Efficient bookkeeping solution leads to an efficient accounting system. Accounting cannot be done in a business or an organization without a bookkeeping solution to keep everything in check.
- A business is in safe hands when there is a record of every transaction made, every sale made, every purchase made, as well as tax deductions.
- Bookkeeping ensures reviewing of the expenditure and income statement of a business.
- Bookkeeping helps to statistically analyze the loss and profits the business is making at a certain point.
Basics of eCommerce Bookkeeping
Now that we have a clear idea of ecommerce bookkeeping, we will discuss e-commerce bookkeeping. E-commerce bookkeeping is the documentation and record of financial matters in an ecommerce business. E-commerce is the sale and purchase of goods on the internet using ecommerce platforms. It can be done by using any sales channels such as computers, laptops and even smartphones. Keeping a record of all the transactions done on ecommerce platforms is known as e-commerce bookkeeping.
To run an ecommerce business is not a piece of cake. There are many technicalities and managerial requirements for a company to grow. Keeping a chart of accounts and financial management is one of the critical requirements of a successful ecommerce platform. How to achieve successful sales platforms bookkeeping is through the following steps:
- Practice frequent bookkeeping practices
- Build accurate and up-to-date records
- Maintenance of the entire e-commerce budget
- Start with a basic excel sheet to record everything
- Unscrambling retail business and private finances so that individual is not held responsible for any discrepancy
- Organizing every document and record to simplify the purchase of new equipment or applying for a bank account loan.
- Track inventory through inventory management.
How to Do Bookkeeping? (How to Keep Your eCommerce Books)
Effective bookkeeping entails an understanding of an ecommerce business’s rudimentary accounts. In bookkeeping, you must adjust your ecommerce books to the year’s end. The bookkeeper has to keep a careful trail of these items and be sure the dealings that deal with possessions, liabilities, and equity are documented properly. If you are going to do bookkeeping by yourself, you need to keep in mind the following.
- Separate your business and personal finances
- Find effective bookkeeping software
- Record everything in ecommerce books
- Organize a chart of accounts
Appropriate bookkeeping is a fundamental assignment if you have any desire to become your ecommerce business and remain monetarily stable. Without it, it can prompt substantial financial difficulties. Feel free to ask us at LegendFinancial to clear your doubts regarding how to become an effective bookkeeper for your ecommerce business.
What Does an eCommerce Bookkeeper Do?
Individuals responsible for ecommerce bookkeeping are known as bookkeepers. An e-commerce bookkeeper’s job is to manage everything, from jotting down every detail regarding the particular business. An ecommerce bookkeeper ensures a smooth business flow by keeping a record of transactions, sales, purchases and tax returns. They also keep track of the processing fees and expenses of the business. They try to bring profits to the business by analyzing real time financial data and records.
With the increase of ecommerce businesses, the need for e-commerce bookkeeping is also on the rise. It is easier to run an e commerce store than the traditional ones. In the same way, e-commerce bookkeeping is also an efficient way to keep up with daily tasks.
Financial reports, tax reports, sales purchases, and proper documentation of every transaction is the ultimate goal of a bookkeeping team. Many ecommerce bookkeeping services are available to ease the burden of an e-commerce businessman.
Ecommerce Bookkeeping Best Practices
It is essential to know where the items that must be sold belong in the supply chain to list accordingly. Understanding why a particular product is not selling is beneficial, so it is prioritized, and the listing is done appropriately. Drop shipping can be considered to expand businesses like online shopping is becoming common among people, which will provide them with easy and convenient ways to shop, resulting in the popularity of the company.
Using available data to develop the business will help to keep up with the latest business trends. Acknowledging customers’ behavior patterns and considering preferences helps keep track of everything. This will help you get a better understanding of the goods sold and not and which steps taken are yielding better gross margin so that better financial decisions can be taken in order to move on.
Keeping up with sales taxes is essential in ecommerce bookkeeping. You need to keep with the amount of tax you collected and the amount owed to the tax authority. The paperwork related to tax should be done on time, or interest may be included in case of delay. Hence it would be better to note down the details of sales tax on a piece of paper to avoid such penalties.
In ecommerce businesses, it is essential to update the balance sheet—how much goes in and out the firm’s bank account. It is easy to forget from the start due to the exhilaration of running a new small business. However, crucial that you don’t miss out on keeping records of your cash inflow and outflow in your balance sheet. This helps with better handling of your bank accounts balance and avoid negative cash flow.
Understanding which items to track inventory for or not is also very advantageous for businesses. Inventory products are the items you have to track inventory for, as they have to be stocked and put up for sale. On the other hand, non-inventory products are sold online through websites but are not physically available to you yet.
Expanding knowledge and developing new skills with time is vital for ecommerce businesses. It would help if you were ready for the changes in ecommerce platforms as the world is changing. Technology is being developed with time, so it will be better if the ways of business are changed with it to keep up with the new trends so you can merge in and prove to be an advantage.
One of the advantages of ecommerce businesses accounting software is that it is uncomplicated to keep track of workers. Through payment processors, you will have better updates about their working hours, which will prevent you from overpaying them.
Choosing the right cash flow management software for the ecommerce bookkeeping of your business is extremely important. Choosing ecommerce accounting software depends on your business needs. You need to know that accounting software is worth paying for. Reading the reviews before choosing one will be an advantage because not all accounting software fulfils the bookkeeping requirement.
If inventory management is done correctly, it will not be time-consuming, and the bookkeeping will not take time. Tracking cash flow after stocking is vital, along with the correct equipment for listing.
Recommended Tools for Bookkeeping
Using the right inventory tracking, ecommerce accounting software, and other tools guarantee progress in e commerce platforms. Several types of tools are used to manage one’s bookkeeping system. Some of the recommended tools for bookkeeping are as follows:
Time-tracking: This tool checks the amount of time spent on the client or the project. This way, it prevents wasting one’s time on a single project and also determines the efficiency of team members. Time tracking is also helpful if a business charges by the hour so that one receives a full return of their time and efforts. This tool also checks the business’s loss and profit so that the system is changed according to the given statistics.
Expense tracking: Revenue generation is a crucial process, whether for large or small business. The main aim of the expense tracking tool in ecommerce bookkeeping is to keep track of all merchant fees. Organizing expenses, evaluating their profitability, and calculating costs are crucial in bookkeeping.
The cash flow statement tracking tool does all of this to generate more revenue by analyzing which category or goods sold more, and hence the expenses are managed. Without this ecommerce accounting software, e commerce businesses may lose due to failure to match the merchant fees with the project budget.
Billing and invoicing: To charge customers with bills and send invoices is an integral part of every business. Billing and invoicing tools help regulate the flow of income in a business by sending and receiving invoices. Some payment processors contain automated invoices that also point out late bills or credit card payments.
Budgeting tool: The budgeting tool in bookkeeping helps prioritize products and allocate budget to every step of the process so that merchant fees and revenues are kept in check. Budgeting, in general, is absolutely crucial in every business. Having a proper record of every month’s budget and allocating the full year’s budget is the main aim of budgeting tools.
Organizational tools:
In today’s world of the internet, every task is managed by computers. Organizing and scheduling tasks and online meetings with other businesses or clients, inventory management, shipping logistics, and all the other aspects of business operations all come under the organizational tools of bookkeeping.
E commerce platforms keep track of every forum and every task and keep a fast track of emails sent and received, and administrative tools manage their responses. Some main organizational tools are file sharing solutions and online scheduling solutions.
Bookkeeping is a crucial part of ecommerce businesses, as they cannot flourish without it. Any company that can keep track of its finances can quickly climb the ladder. Your business can be managed properly when you know where it stands financially. This ultimate guide on ecommerce bookkeeping shows that even you can do bookkeeping, regardless of whether you run a large or small business.
For accuracy and efficiency, you should opt for an accounting and bookkeeping service, which is what Legend Financial is here for. We provide ecommerce bookkeeping services, such as tracking records of transactions, keeping track of taxes, preparing financial reports, and more. Most importantly, we keep a track record of your business’s overall financial health. Reach us today!
References
A Painless Guide to Ecommerce Accounting. (n.d.). Retrieved from BIGCOMMERCE: https://www.bigcommerce.com/blog/ecommerce-accounting/#the-2-types-of-accounting-for-your-ecommerce-business
All You Need to Know About eCommerce Bookkeeping. (n.d.). Retrieved from QuickBooks blog: https://quickbooks.intuit.com/ca/resources/bookkeeping/ecommerce-bookkeeping/
Bookkeeping 101: Bookkeeping Basics for Small Businesses. (n.d.). Retrieved from NerdWallet: https://www.nerdwallet.com/article/small-business/small-business-bookkeeping#bookkeeping-basics-for-small-businesses
Ecommerce Accounting & Bookkeeping Guide To Best Practices. (n.d.). Retrieved from ecommerceCEO: https://www.ecommerceceo.com/ecommerce-accounting-bookkeeping/
The Ecommerce Guide to Bookkeeping. (n.d.). Retrieved from ShipBob: https://www.shipbob.com/blog/ecommerce-guide-bookkeeping/
