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what is e-commerce accounting?
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    At whatever point your ecommerce business stands, bookkeeping and accounting are two of the most important factors to consider for long-term success. Like any other industry, it is impossible to manage your funds if your financial records are not kept in order.

    The country’s uncertain tax regulations and opportunities for tremendous growth on the Internet require bookkeeping and accounting for ecommerce businesses.

    An ecommerce accounting system would help to track your overall performance and for decision-making for successful performance by providing readily available information such as real-time reports, in-depth data analysis, and extensive financial.

    This blog will let you know how to ensure success in your ecommerce business with effective bookkeeping and accounting procedures.  

    Understanding the accounting fundamentals for an ecommerce business would keep your business away from any trouble.

    What is the Difference Between Accounting in ecommerce and Bookkeeping?

    Accounting and bookkeeping are two distinct methods that are both essential for keeping track of your business. These routine duties may not be the most enjoyable for small business owners to complete.

    Therefore, many ecommerce business owners delegate these responsibilities to an outsourcing company.

    The terms “bookkeeping” and “accounting” are not interchangeable. However, when it comes to running an ecommerce business, these two tasks work hand in hand.

    The recording of a company’s financial activities is known as bookkeeping. On the other hand, accounting is the process of interpreting those transactions.

    Business owners or a hired bookkeepers would keep track of sales, purchases, and payments with ecommerce bookkeeping. Bookkeeping is the process of recording all of your company’s expenses and income.

    It’s also a means for you to keep track of your company’s spending and profits, as well as transactions.

    Accounting is the process of organising data from bookkeeping records. This approach applies whether you’re selling on WooCommerce or a marketplace like Amazon or Etsy.

    Interpreting, analysing, classifying, reporting, and summarising data is known as accounting. It’s not enough simply to keep track of your expenses and earnings.

    You must examine the numbers to see whether you are profitable or not. With these answers, the ecommerce entrepreneur may determine the best course of action for their company.

    You can keep track of your financial figures by combining accounting and bookkeeping. You’ll also have a comprehensive picture of the financial state of your company.

    Let us have a look at the duties performed under bookkeeping and accounting,

    What do bookkeepers do for ecommerce businesses?

    • Categorisation of transactions
    • Invoicing 
    • Balance sheets 
    • Payroll management 
    • Accounts payable and receivables management

    What do accountants do for ecommerce businesses?

    • Financial information audits 
    • Tax planning and reporting
    • Financial reporting 
    • Financial forecasting 
    • Risk analysis 
    • Preparation of financial statements 

    As you’ve seen, starting an ecommerce business is thrilling, but it also entails a lot of work. Growth can rapidly become a nightmare if you don’t have the right accounting systems.

    Types of Accounting for ecommerce Businesses

    The two primary accounting methods include cash basis and accrual basis. 

    Cash Basis Accounting

    Cash basis accounting keeps track of transactions as they enter as income or leave your account as an expense. You record this sum when you’ve received cash in hand or sent it out for payment.

    Because of its convenience, cash basis accounting works well for ecommerce businesses when they begin. You can examine how much cash you have on hand at any given time by reporting money movements based on your accounts.

    You do not even have to pay Income Tax on the money you haven’t received when using cash basis accounting.

    This method of bookkeeping is most effective for the following businesses:

    • Smaller ecommerce sellers
    • Maker businesses
    • Companies that provide on-demand products
    • Dropshipping

    Cash-basis accounting, on the other hand, is not as effective for large-scale or growing organisations. It might not be suitable for such businesses because it does not account for future receivables or payables.

    Accrual Basis Accounting

    Accrual accounting is used at the time the transaction of the business happens and does not result in any fund movement in the account of a company. This is used in most financial institutions. At first appearance, accrual accounting can be puzzling.

    When you account for current and future obligations, accrual accounting provides a more realistic depiction of your monthly business income and enables more accurate financial projections.

    The disadvantage of this strategy is that it focuses on how much money you transfer rather than how much money you have.

    Using an accrual accounting basis to account for future income and expenses runs the risk of making your finances appear more promising than they are, requiring you to keep a closer eye on them.

    Why use Bookkeeping and Accounting for ecommerce businesses?

    A reliable accounting system is a must for an ecommerce business. The following are some of the most significant advantages of implementing a trustworthy ecommerce accounting system from the outset.

    • Ecommerce Accounting Aids in the Development of a Stable Business Model

    Accounting and bookkeeping ensure the financial stability of your company. They can help you gain insight without disrupting procedures like payroll and tax audits by providing a trustworthy solution for all information. Ecommerce accounting keeps you updated and prepared for your company’s logistical needs. 

    • Ecommerce Accounting Aids Financial Planning

    You can’t estimate your company’s future performance until you properly understand your numbers. With an ecommerce accounting system in place, you can securely prepare for the future.

    • Accounting for ecommerce guarantees proper tax compliance

    Handling all of your bookkeeping tasks, including tax compliance, would take a huge amount of time and effort. You can’t afford to be distracted as an ecommerce business owner.

    Ecommerce bookkeeping methods ensure that you stay tax compliant, so you don’t have to focus on what matters most: long-term business growth.

    • A successful commerce organisation may have few bookkeeping and accounting fundamentals

    Your financial information is conveniently accessible thanks to an organised accounting system that keeps track of everything. The burden of tax audits and payroll is reduced when you have a well-organised system in place.

    FAQs

    Is ecommerce a business?                                                                                                       

    The business of purchasing and selling goods and services through the Internet is known as ecommerce.

    Why is accounting important for ecommerce?                                                                                                                                   

    Accounting for ecommerce is not the same as accounting for traditional trade. Whether you earn money by selling on Amazon, eBay, Shopify, or any other ecommerce platform, your company has industry-specific requirements that must be taken into account in your accounting and bookkeeping operations.

    What is the difference between ecommerce and e-business?                                                                                         

    Ecommerce refers to online buying and selling, whereas e-business refers to all online transactions. E-business can be thought of as a subset of ecommerce.

    What are the main activities of ecommerce?                                                                                                           

    • Buying and selling products online.
    • Online ticketing.
    • Online payment.
    • Paying different taxes.
    • Online accounting software.
    • Online customer support. 

    If your business is growing rapidly, a bookkeeper should focus on maintaining well-organised records. Accounting should be delegated to someone completely responsible for financial forecasts and data analysis.

    Outsourcing your ecommerce accounting is a simple approach to saving money and improving efficiency. Contact us, at WIS Accountancy today.

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