What Makes Ecommerce Accounting Different?
Estimated reading time: 5 minutes.
Business accounting is one thing.
Ecommerce business accounting? That’s another thing entirely. And for sellers with little to no accounting experience in general, it’s crucial to get to grips with what’s required as early as possible.
The basic principles of accounting remain the same, but there are some fundamental differences.
For each that we cover below, there are solutions out there to help you.
With the monumental growth of ecommerce has come a significant expansion in the tools available to facilitate these types of businesses, so you are far from alone!
If you haven’t checked out the first part of our series yet, we cover the fundamentals of ecommerce accounting. Some of these are pretty typical for business accounting. Here, we will delve into the four key areas that set ecommerce accounting apart from accounting for other businesses.
In this blog, the second of our ecommerce accounting fundamentals series, part of the A2X accounting hub, we cover how ecommerce accounting is different in four key ways.
Table of Contents
Ready? Let’s do it.
The 4 Main Differences in Ecommerce Accounting
1. Sales tax can be confusing
One of the biggest drawcards of selling online is being able to market and sell to a wider group of people. The downside is figuring out and staying on top of your sales tax obligations.
These depend on numerous things: where you sell, where you store inventory, and how much business is worth to you in various locations. These all factor into whether you qualify for economic nexus in certain countries, and if that deems you eligible to collect and remit tax.
For most traditional businesses, you must file for sales tax in the state or country where you are a tax resident because your products or services are sold or paid for in that state or country. That changes when you’re dealing with international or interstate customers.
For accountants who aren’t familiar with sales tax at an international level, it can cause major headaches.
Failing to comply with sales tax legislation, and not filing your return accurately and on time, will cost you in late fees. In the US, you’ll also find the states like to back-charge for sales tax not paid in previous years – and yes, they add interest too.
2. Inventory management can be complex
Traditional brick-and-mortar stores sell the stock they have on hand to a customer in a shop, but it’s not unusual for an ecommerce seller to sell through multiple channels.
You might even use a third-party logistics company, or Amazon FBA to store and/or ship your products for you.
The challenge is in keeping track of how much product you have in production, en-route, in customs, at your storage warehouse, in a shopping cart, or in a returns pile.
Plus, services like Amazon FBA charge you extra if you store items for a long time.
Things get even more complicated as you increase your product range and sell more in other marketplaces.
How is this all relevant to your accounting? Having a good inventory management system is essential if you want accurate financial data.
Often, the result of not being able to manage your inventory is needing to carry extra, which can cause cash-flow challenges. This is something your accountant needs to understand.
3. A large volume of transactions gets complicated
Another challenge is transaction volume. Lots of transactions equal lots of financial data.
Traditional stores have systems that can handle a large volume of transactions. Ecommerce stores have similar cloud-based options – but it’s the data within each transaction that causes things to get a little tricky.
There are several good cloud-based accounting systems you can integrate to pull your transactional data directly from an ecommerce platform. The problem is, those systems can quickly become overwhelmed by the data that you’re importing and will slow down.
That’s why you need additional software like A2X which automatically imports a summary of your transactions – giving you the financial visibility you need, without blowing up your accounting system.
This is where it’s beneficial having an ecommerce accountant who’s familiar and confident using different online accounting tools and software – so you always have efficient financial data you can rely on.
4. Understanding the numbers is easier said than done
Of course they should understand the numbers, you say.
For businesses outside of ecommerce, finding your business transactions is simple – that’s what bank statements are for.
But for ecommerce businesses, things aren’t quite as black and white.
One of the most common mistakes accountants can make, who aren’t familiar with platforms like Amazon, eBay, Walmart or Shopify, is assuming the deposits companies make into your bank account are income.
This causes two issues.
Firstly, those are net deposits, and they’re for a period, not one day.
Secondly, each deposit isn’t solely sales. It’s also affected by sales tax, returns, shipping, seller fees, and more.
To understand each deposit, your accountant needs to know where to look in the back-end of your sales channels to find this information.
It’s this information that helps you make good business decisions. Without it, you could be severely under or over-estimating the financial health of your business.
Get Expert Help Tailored to You
We get it – your ecommerce store is your baby, and just like a child, you must first learn what makes it different and what it needs to develop and grow.
Then, as it gets bigger, becomes more complex, and requires more attention, you bring in the experts to give it the best chance in life.
The online world will always debate the role of ecommerce accountants; some believe traditional accountants do the job just fine. At the end of the day, you can’t deny that ecommerce comes with a raft of accounting complexities that traditional businesses don’t have – and for your business to be a success, you need an accountant who has experience dealing with these.
Filter by country – and get in touch.
Next in the Series…
This blog is the second part of our ecommerce fundamentals series, part of the A2X Ecommerce Accounting Hub.
Next up, we approach the subject of bookkeeping methods. What are they, what options to sellers have and how do those options impact the future of their business?