When you start an ecommerce business, you are probably thinking of which products you want to sell, who your target market is, and how profitable your operations will be. The details of your Shopify or Amazon accounting might not have crossed your mind.
This can result in inaccurate and outdated information that you might be relying on to make important business decisions. In this article, we’ll cover the basics of Shopify accounting, including the main components you can expect to come across and how ecommerce accountants can help you succeed.
What is Ecommerce Accounting?
Ecommerce accounting is the process of managing the transactions in your business. This includes categorizing each transaction and ensuring they flow through to your financial statements properly. Here are some of the areas that bookkeeping for Shopify and Amazon will focus on:
- Revenue – This section of ecommerce accounting tracks your gross sales from each platform.
- Cost of Goods Sold – These are the expenses directly related to your revenue activities, such as Amazon FBA fees, raw materials, and shipping costs.
- Expenses – Any other expense not related to cost of goods sold will be found in this category.
- Accounts Payable and Accounts Receivable – These accounts track the money you owe to vendors and the money customers owe you.
- Loans and Interest Expense – Notes payable, lines of credit, merchant cash advances, and any other type of loan will be found here.
- Ecommerce Sales Tax – Most ecommerce platforms sell goods across the nation, meaning you need to ensure sales tax compliance with all state agencies.
These are just a few of the areas that ecommerce CPAs focus on. The overall goal of ecommerce accounting is to provide your business with accurate financial data to make more informed decisions surrounding tax compliance, financial reporting, and growth.
What is Involved in Ecommerce Accounting?
Ecommerce businesses aren’t like the typical mom-and-pop shop. In fact, ecommerce businesses operate in a digital landscape, opening the door to specific bookkeeping and accounting requirements. Let’s take a closer look at what’s unique in ecommerce accounting.
Merchant and Payment Processing Fees
Platforms, like Amazon, Shopify, and eBay, all charge ecommerce businesses a fee for using their platform. This merchant fee can either be annual, monthly, or as a percentage of each sale. Merchants generally deduct their fees off the top of your revenue, sending your net sales to your bank account.
However, revenue recognition principles require that revenue be reflected at the gross amount. This requires ecommerce sellers to true-up revenue by removing merchant and payment processing fees. If you are confused about the entry you should make, a Shopify CPA or an Amazon FBA CPA can help.
Returns and Chargebacks
Every ecommerce business will experience returns and chargebacks at some point. Whether the customer was simply not happy with their purchase, or the package never arrived, you need to be aware of how to handle this transaction in your accounting system.
Sales should always be recorded after the order has been fulfilled, regardless of if the money was later returned to the customer. Simply deleting a sales transaction if a chargeback was filed will throw off your reconciliations. To properly track these expenses, consider adding a chargeback account to your chart of accounts and record a separate transaction for returns and chargebacks.
Freight and Shipping
Freight and shipping will most likely be one of your top business expenses, meaning you want every possible cost recorded to lower your taxable income. There is a difference between freight-in and freight-out. Separating these two costs in your accounting system gives you more insights into customer preferences and where your money is being spent.
Sales Tax Collection and Remittance
Sales tax compliance can be difficult to maintain in your ecommerce business, especially as your business begins to grow. Each platform has different policies. For example, the burden of Shopify state sales tax is left up to ecommerce business owners, while other platforms, like Amazon collect and remit sales tax on your behalf.
Enlisting the proper Amazon accounting services or Shopify bookkeeper will help you stay in compliance on all platforms you sell on. Additionally, sales tax can be deducted from your gross pay, similar to merchant fees. This leads to another required entry in your accounting system to true up revenue to the gross amount.
Ecommerce CPAs: Your Secret Weapon
Are all of these areas properly covered in your ecommerce business? If not, it might be time to enlist the help of an ecommerce CPA. Working with an expert that understands the specific bookkeeping needs of your business is indispensable when it comes to saving money on taxes, compliance with regulatory agencies, and effective growth strategies. Reach out today to schedule your free consultation.
