eBay Business Accounting Guide: Everything You Need to Know
Estimated reading time: 9 minutes.
Though traditionally the site for digital garage sales, eBay has become so much more than that today, and so have its sellers.
What was once a place for hobby selling and experimenting is now a bustling marketplace for serious, ambitious sellers that need to manage their money properly - and that requires smart eBay business accounting.
And the earlier in the game that eBay sellers get control over their accounting, the more they’ll save in the long run.
Whether you’re just starting out on eBay, or just starting out with proper eBay accounting, this guide is for you. We’ll explore what makes the world of ecommerce accounting a bit different, the basics that you need to know, and what tools are out there specially designed for your needs.
Plus, the legal obligations you’ll need to be prepared for along the way.
In this guide on eBay business accounting for sellers:
Table of Contents
Ready to rock your books? It’s showtime.
What Makes Ecommerce Accounting Unique?
You can take away the physicality of a business and still be left with a lot of responsibilities.
Sure the bins don’t need emptying, but a lot of other plates remain spinning in the air - particularly when it comes to ecommerce businesses.
And if you’re going to get professional help, it’s important that you seek out a specialist ecommerce accountant with the skills and expertise to steer you in the right direction.
Because ecommerce accounting is a little different.
4 unique qualities of ecommerce accounting
Sales tax is a weird and not-so-wonderful beast.
Since the Wayfair decision in 2018 turned tax authorities onto ecommerce sellers, collecting and remitting sales tax has become a top priority - no matter where you sell. And that includes overseas, too.
Each US state has its own rules, regulations and rates, and the complexities don’t stop there. Locations within states have varying rates; some states have none at all; eBay helps you in some areas and not others - and we haven’t even left the States yet.
If you sell overseas, you’ll also have VAT and GST to deal with.
If you’re new to ecommerce and/or to sales tax, having experienced help to navigate them is invaluable. Oh, and states will back-charge you for any time you’ve spent non-compliant. So it’s truly make or break to get your eBay taxes right.
Managing inventory is far from simple.
If you own a physical store, you’ll have a stockroom with limited space. You replenish your shelves and inventory as you go, but without one, you can’t have the other.
That’s not quite true of ecommerce. You could a) be selling through multiple channels, not just eBay, and/or b) be fulfilling orders through a third-party like Amazon FBA (yep, you can use that even as an eBay seller).
You need to keep track of inventory stored, en-route, damaged or being returned, in production or at customs, for example.
Imagine the logistics of keeping on top of that even with a small product line - and then, what if you increase it?
If inventory is not managed effectively, you could end up ordering too much and jumbling up your cash flow. Running out of money when you owe it is not a recipe for success.
Transaction volumes can be significant.
With all that inventory and no “opening times” comes increased volumes of transactions that need to be accounted for.
Cloud accounting software is an excellent resource for ecommerce sellers and a must for pulling across all of your eBay accounting financial data.
But keeping that transfer strictly to individual transactions can slow the software. Processing thousands of individual orders can slow it down, so having A2X, which summarizes these for your software, is the ideal solution.
Working with an accountant that understands these types of challenges and what software is best to help you will save you both time and money in the long run.
Settlements can show an oversimplified picture.
Outside of ecommerce, understanding and reconciling your transactions is fairly simple. Bank statements get you most of the way there.
But one ecommerce bank deposit can house numerous lines of information which aren’t always split out for you.
Deposits usually come after fees, penalties, and costs are deducted, and after income is added. The deposit itself is not income - and failing to make this distinction is a common mistake made by ecommerce sellers.
On top of that, a deposit may be from a particular period of time, and account for numerous transactions in one lump sum.
You (or your accountant) need to know where to find the missing information, and which tools can automate that time-consuming process for you.
The Basics of Accounting All Sellers Need to Know
Have we put you off ecommerce yet?
Hopefully not, because as much as there are obstacles to overcome, there are plenty of tools to help you do just that. Before we get to those, there are a few terms you should be aware of as you venture into the world of ecommerce and eBay accounting.
First thing’s first, the terms “accounting” and “bookkeeping” may be used interchangeably, but they are different.
Bookkeeping is an accounting practice whereby information is recorded neatly and organized accessibly.
Examples of bookkeeping tasks
- Reconciling your accounts.
- Categorizing your transactions.
Accounting is more analytical and topline, working with the records kept by bookkeepers to forecast and report on the health of a business.
Examples of accounting tasks
- Financial auditing.
- Tax planning and reports.
- Risk analysis.
- Interpreting financial statements and reports.
Your eBay bookkeeping needs to be consistent, organized, and accurate in order for you (or your accountant) to perform effective accounting tasks.
And it’s these tasks that drive your business growth.
Keeping your books updated is not just about pleasing the taxman. It’s about regularly making informed decisions about the future of your business.
So if you have ecommerce accounting software - which we’ll talk about next - where would the value lie in having an accountant too?
The value is in the tasklist. Your accounting software should help you with efficient bookkeeping, and your accountant with your accounting. Wouldn’t you rather they add value there than in number crunching?
Even if having an accountant isn’t something you want right now, it may be best to have them help you get set up. Find one from our specialist directory here.
Accounting for eBay Sellers
Now that you’ve had an all-round introduction to accounting, bookkeeping and ecommerce challenges, let’s get stuck into eBay accounting specifically.
Here we’ll talk about the key tools you need for your eBay bookkeeping, recommendations for which ones are best, and how to get the most out of your stack.
eBay accounting spreadsheets
New sellers wanting to save costs may look first to Excel for their bookkeeping needs.
There’s nothing wrong with using spreadsheets to help run your business, but spreadsheets rely on manual data entry and can be outgrown very quickly.
Remember all those things we said you need to keep track of? The information in every settlement, the movement of your inventory, and naturally, your cash flow - past, present and future? Getting that into a functional spreadsheet is challenging to say the least.
Then there’s using it for different channels - you can’t integrate a spreadsheet for automatic updates, or add apps that optimize certain aspects of your books.
Finally, security is a huge problem with spreadsheets. Access to your financials this way is all or nothing - you can’t control permission levels with Excel. What if something happened to the file?
For these reasons, no matter whether your eBay business turns over $100/week or $10,000, cloud accounting software is the way to go.
The best eBay accounting software
Choosing the best eBay accounting software for your business requires a bit of forward thinking.
If you haven’t already, we would highly recommend you put together an eBay business plan which will help you articulate the goals you have for your business. Its future will dictate the tools you need to get there, and some software options will be better suited to these than others.
In our blog, The Best eBay Accounting Software, we break down our top recommendations, why we love them and what others think.
eBay accounting apps
Aside from scalability, automation and security, a huge plus in using cloud accounting software is the access to so many apps that can level-up and optimize your books.
You can design your accounting toolkit so that your eBay business accounting is customized from the start.
Inventory management apps, for example, automate that more complex side of your business.
Are you dropshipping? Then you won’t need inventory management apps, but you could invest in tax apps to help automate that niggly aspect of your bookkeeping.
Regardless of your business model, there is one app that is designed for any ecommerce seller, whether they use one platform or all of them - and that’s A2X.
“A2X is fantastic! I highly recommend it to anyone who works in the ecommerce sector; it revolutionises the entire way bookkeeping is done! The ease and speed of reconciling settlements - is incredibly quick. It’s a no brainer - A2X solves many problems and makes a huge difference!”
- Deanna Simpson, Xero Forums.
“Well what can I say, the A2X application is a complete no brainer. As a growing business, and one with very little accounts and bookkeeping knowledge, the collaboration with A2X… just makes this unbelievably simple.”
- ImanEnterprise, Quickbooks.
A2X gives you all the details you need about your bank deposits automatically, sending neat journal summaries of these to your accounting software.
It organizes your books via the accrual method for better forecasting and ensures that you have reliable numbers in a fraction of the time.
It’s accurate ecommerce accounting without the fuss. You can try it today for free.
Get Help With Your eBay Business Accounting
As your business grows, so will the complexity of its bookkeeping.
More money will be coming in and going out, and it will still need to be categorized, analyzed and reported on correctly.
To get a helping hand at the start of or throughout your eBay business journey, chat to one of our trusted specialist ecommerce accounting partners today.
Next in the Series…
Next up in our eBay accounting academy series, we talk about fees. Find out all the fees that you could be charged as a seller, how to manage them, and how to reduce them.