Why is e commerce important to accountants

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Trending in News. Others Also Read. Load more. Under the VAT system, instead of tax being applied to the end user, tax is remitted at all levels throughout the supply chain, from manufacturers to wholesalers and retailers. When shipping internationally, e-commerce sellers are also required to pay and document an import duty, which is a tax imposed on imports by the destination country.

The cost will vary depending on where the product is being shipped and the value of the product. The rising sophistication of the e-commerce ecosystem presents online sellers with enormous selling potential, especially when partnering with some of the largest, most trusted online marketplaces in the digital space. Some e-commerce platforms will integrate with your existing accounting system, and some marketplaces — Etsy, for example — will even collect and remit sales taxes on behalf of their sellers, but not all provide this level of integration.

E-commerce is all about transactions. For this reason, online sellers need a bookkeeping solution that captures all the intricacies of their business, such as transactional data, inventory, shipping costs, and sales tax, among others. An accountant can help you build a framework that organizes your books in a way that meets your unique needs. For example, if you sell products on various online marketplaces, it may make sense to have separate line items on your trial balance for each marketplace to make it easier to reconcile those values with the external reports you receive.

In addition, e-commerce sellers incur different fees than standard brick-and-mortar retailers. Costs associated with transactional fees, returned items, and lost packages can add up quickly. An accountant can identify ways to track and minimize these costs to put more money back into your pocket.

Due to the complex nature of transactional data, an accountant can also help you establish an accounting system that compiles transactional data into financial reports while preserving the detail. Ecommerce business owners have two tax categories to mind — business income taxes and sales taxes. Navigating sales taxes can be challenging since you need to factor in both:. Source: Tax Foundation. The second option is less error-prone. The IRS calculates your dues based on the last return and expects payment according to the calendar.

All of these records will have to be filled with your local tax jurisdiction according to the due date. Customer returns and chargebacks are two different types of expenses that need separate recording. Ecommerce stores can have one or several return policies and this should reflect in your accounting:.

Chargebacks happen when a customer disputes a transaction with their bank by claiming that it was fraudulent. Accounting is the art of maintaining financial records that tell a complete financial story of your business for yourself and anyone else who asks. Since you are self-reporting your financials and taxes to the authorities, you need to maintain proof of all your claims.

That means you should store the following records for your ecommerce business accounting:. All of these records should be kept for at least 3 years. Seems like a lot? Doing those five accounting tasks for your ecommerce store can be overwhelming, especially when you are just getting started.

Keep a straight record of all regular account payables, along with a weekly budget Excel spreadsheet. Tax season can be hectic if you come offhanded. Your commitment to maintaining neat records throughout the year will pay off massively. Storage costs will end up overeating any type of bulk discount you are getting. To run lean operations, set a minimal and maximum volume of inventory that you can keep, based on your budgets and cash flow projections. With thousands of records to sift through, you will miss something important.

That can be something minor such as an unclaimed deduction. Or a major omission that may require corrections in your tax returns. What to do instead: Block hours each month when you sit down and review all the financial documents, organize them by category, and then do a bank account reconciliation.

When you do your books in a hurry, mistakes will creep in. Having errors in your bookkeeping records can eschew your financial projections and result in financial losses. If those are left unattended, they can pass onto your tax fillings. What to do instead: Automate your accounting to prevent manual mistakes and inconsistencies. Once you have a budget, hire a chief financial officer CFO , CPA certified public accountant , or an in-house ecommerce accountant to help you with tax reporting.

With the right accounting system in place, a supporting accounting app, and proper diligence you can get a good hang of your accounting, and learn to love the practice of analyzing your financials. Especially, when those insights translate to higher income!

Want more insights like this? Subscribe to our bi-weekly newsletter to get the latest thought leadership content delivered right to your inbox — from blogs and resource articles, to podcast episodes, webinars and more. Tomas Laurinavicius is a co-founder of Content Writing Jobs, lifestyle blogger, content marketing consultant, and BigCommerce researcher from Lithuania.

He writes about lifestyle design, productivity, and entrepreneurship on his blog and lifestyle design newsletter. Introducing the all-new Make it Big Podcast — a thought leadership audio series for retailers, entrepreneurs and ecommerce professionals.

Tune in for expert insights, strategies and tactics to help grow your business. A Painless Guide to Ecommerce Accounting. Get The Print Version Tired of scrolling? Table of Contents. Key bookkeeping tasks include: Transaction categorization. Account reconciliation.

Balance sheets preparation. Payroll management. Account payables and receivables management. There are also several states that will prosecute you criminally if you collect sales tax from their residents without properly filing so this is a big deal and can create some major accounting headaches.

Most traditional retailers only have to file for sales tax in the states where they have a physical location while e-commerce sellers may be managing monthly or quarterly filings! Check out TaxJar they are amazing and let my team know if you need any help getting set up in a particular state. How much inventory do I have and what is it worth? When you were selling lemonade in your neighborhood as a kid this question was very easy to answer.

It can be very challenging for sellers to determine how much product is in production in China, en route, in customs, in your 3PL, in FBA, in a shopping cart or in a returns pile! Things get even more complicated as the number of SKUs, transactions, countries and marketplaces increase.

Suffice it to say having a scalable, integrated and largely automated inventory management system is a must so that your financials can give you accurate data for decision making. Not all products fit neatly into this breakdown. For instance, you might choose to overcome some recent negative reviews by accepting a higher ACOS to drive velocity or you may not have to advertise nearly as much because you have generated lots of brand equity outside of Amazon or you may sell oversized products that carry higher pick and pack fees.

The point is to know where you are and fight to improve financial performance but without really good accounting it is challenging to manage your suite of products. One challenge with retail is that success often means lots of small transactions with lots of data points. In a traditional brick and mortar store a good point of sale system can automatically categorize sku-level sales data and some of them will even capture CRM data for you to help you build your email list.