As an eCommerce business owner, “accounting” will be your least favourite part of the job. Still, there are 41% of small business owners who run and manage their accounts themselves. You see, while your business may be small right now, it will grow, and the accounts will grow with it. Your sales, loan amounts, supplier payments, return – all these things will require proper sorting and management. When you properly segregate these things, you can easily file your taxes with authority. Without an appropriate accounting process in place, you will lose touch with all the finances, and soon you’ll be overwhelmed.
Worry not, because we have brought you some essential tips on how to manage eCommerce accounting.
Types of eCommerce accounting
To organize your eCommerce finances, you can adopt one of the two accounting methods.
If you use cash-based accounting, you need to add every new record when cash comes into your business account or leaves it. The advantage of using this method is that your account book will reflect each transaction with an accurate date across all your records. It is the best way to start managing your accounting for small eCommerce websites.
Cash-based accounting has one more advantage: When you report the business taxes at the year-end, you won’t have to pay income tax on payments that you are yet to receive. That means you will receive a lot smaller tax bill.
On the other hand, accrual accounting involves you recording every sale or spending when it occurs, irrelevant of the fact whether you received the money or not. Accrual accounting is also called a traditional accounting method since many financial institutions use it. This accounting method may seem confusing when you compare it with cash-based accounting. For instance, you need to calculate the money you are yet to receive and deduct account payables.
But once you look past this confusion, accrual accounting is a sensible option as it shows you the real business picture every month. On top of it, accrual accounting makes you project accurate financials statue since you account for current and future financial commitments.
Critical accounting tasks you should handle from the start
When you are ready to jump in your eCommerce accounting, these are the critical accounting tasks you should handle for a start.
Proper transaction categorization: Categorizing all your transactions is the primary step in eCommerce bookkeeping. You must mark each business transaction on the cash flow record as an expense or income. Various accounting apps will automatically record the transaction, so all you need to do is review them.
Manage your business budget: Your business budget consists of your business expenses along with other financial commitments. They are systematically added up and placed against general revenue. The total sum shows you how much to add to make a profit.
Keep up with taxes: As an eCommerce business owner, you need to mind two tax categories: business sales tax and income tax. And when it comes to sales taxes, you’ll have to manage both state-level sales tax and local sales tax.
Ecommerce accounting is a vital part of your business, no matter how dull and uninteresting. You don’t need an accounting certification to manage your eCommerce finances. When you have the right accounting tactics with the right tools, you can carry out your finances and become better in the process. If you are looking for some expert advice, contact ACE Accounts. With a truckload of accounting experience, we can help you settle your eCommerce business finances.