E-commerce accounting: the most straightforward guide

How do you record e-commerce sales?

When recording e-commerce sales, it’s important to have a system in place to track each transaction’s details accurately. Here are the steps you can follow to record e-commerce sales:   

• Choose an accounting software — Select bookkeeping for e-commerce accounting software that fits the needs of your e-commerce business, whether that’s a simple spreadsheet or a more robust accounting software.  
• Record sales transactions — Once you’ve chosen your software, record each sales transaction as it occurs. Include details such as the date of the sale, the customer’s name and contact information, the product or service sold, the sale price, any discounts applied, shipping charges, and any taxes collected.  
• Track inventory — If you’re selling physical products, keep track of your inventory levels so you know when to reorder. Make sure to record each item sold and adjust your inventory levels accordingly.  
• Reconcile payments — If you’re using a payment gateway or third-party processor, reconcile each payment to ensure you’ve received the full amount due. Also, keep track of any fees associated with the payment processing.  
• Record refunds and returns — Keep track of any refunds or returns and adjust your records accordingly. Make sure to record the date, the customer’s name and contact information, the reason for the return, and any additional fees associated.  
• Generate reports — Use your accounting software to generate reports that show your sales, expenses, and profit margins. These reports can help you make informed business decisions and plan for the future.  

Recording e-commerce sales accurately is crucial for managing your finances and making informed business decisions. By following these steps, you can ensure that you have accurate records of your transactions and can manage your finances effectively.  

How do you handle accounting when selling online?

When selling online, you will need to keep track of your sales and expenses to calculate your profits and pay taxes accurately. Here are some tips and tricks to help you handle accounting for your e-commerce business.   

Set up a separate bank account for your online sales

This will make tracking your income and expenses easier and ensure that you don’t mix your personal finances with your business finances.   

Ideally, you want to set up a business bank account because it might be necessary for tax and legal regulations. There are other benefits too — like having revenue from your online sales going into a specific account will make your bookkeeping efforts a lot easier. Plus, using a business bank account looks more professional and will make your company appear more legitimate to customers.   

Keep detailed records of your sales and expenses

You can use accounting for e-commerce software, spreadsheets, or pen and paper to track your transactions — although choosing the manual options comes with its own challenges to overcome.     

Be sure to record all income, including fees from the online marketplace or payment processor, and any expenses related to the sale, such as shipping and advertising expenses and the cost of goods sold. Getting this process down to a T will not only make your business compliant with tax and legal requirements but will also help:    

• Adopt a culture that gives you accurate financial management    
• Improve investor and lender relations when fundraising    
• Stabilize business growth with invaluable data on your finances    

Determine your profit or loss for each sale

Subtract the cost of goods sold and any expenses from the total revenue to determine your net income for each sale.   

It goes without saying why this is important. However, some other benefits aren’t so tangible, such as getting an advantage over your competition. With information on your profits and losses, you can calculate your selling prices more appropriately, improve profitability, and stand out from competitors.   

Monitor your cash flow

Keep track of when payments are received and when expenses are due to ensure you have enough cash to cover your expenses. 

Here are some reasons why monitoring your cash flow is essential for online sales: 

• Cash flow planning   
• Financial management   
• Budgeting  
• Tax compliance  
• Business growth 

Set aside money for taxes

You’ll likely be obligated to collect sales tax or pay income tax on your profits depending on your area and the things you sell. Speak with a tax expert to ascertain your tax requirements and save money accordingly.   

Better to nip this in the bud now than to later find out that you were supposed to be recording and paying tax on something and now have to find essential information retroactively.