Frequently Asked Questions

1. Traditional accounting tasks focused on a business that has e-commerce sales channels.   Three factors make e-commerce accounting more complex than usual
   • Cash or bank related activity do not always correspond with revenue related activity.  For example, bank deposits from payment processors are ordinarily not revenues, but instead include a combination of merchant fees, refunds, chargebacks, and revenues.
   • Accounting for inventory.  For accounting purposes, the cost of inventory can only be expensed on the income statement when the individual units are sold.  For example, if there are 10 units of inventory purchased, and 2 are sold to customers, then 2 units of inventory are eligible to be expensed on the income statement while the other 8 units are not yet deductible and must be included on the business’s balance sheet.
   • For a successful online seller, there is often a very high volume of transactions that need to be accounted for.

If you are a seller that has substantial levels of profits, we highly recommend hiring an accountant for several reasons:

• • Tax can be a substantial expenditure of yours, especially for successful business owners in the higher tax brackets.  If the work is done incorrectly, there is the risk of overpaying or underpaying your taxes.  If you underpay your taxes, you are at risk with the tax authorities.  If you overpay your taxes, you can put financial strain on the business
  • Tax professionals can assist you in structuring your business in a more strategic way to optimize your tax structure.
  • Having a handle on your accounting and bookkeeping is essential.  Your profits are the starting point for calculating your income taxes, so if youre accounting/bookkeeping is incorrect, the taxes that your business incurs will also be incorrect.   Additionally, we believe that knowledge is power.  Having a good handle of your financial performance on a regular basis is essential to any successful entrepreneur.

1. CFO is an acronym for “Chief Financial Officer”.  The chief financial officer (CFO) oversees a company’s finances. A CFO analyzes financial data, reports financial performance, prepares budgets, and monitors costs.  This is often handled by an individual that is an employee of the company.  This individual is often one of the most highly compensated employees of the company.
2. An outsourced CFO is a finance leader outside of your organization that provides top-tier finance, business, accounting, and operational guidance for your business. An outsourced CFO is usually not an employee of your company and accordingly will come at a much lower cost in comparison to a full time CFO.

1. Personal information including your name, social security number, and mailing address as well as the information for direct family members.
2. Financial information about your income as well as documentation for taxes that you’ve already paid.
3. Information about foreign bank accounts
4.  
5. An outsourced CFO is a finance leader outside of your organization that provides top-tier finance, business, accounting, and operational guidance for your business. An outsourced CFO is usually not an employee of your company and accordingly will come at a much lower cost in comparison to a full time CFO.

1. CPAs can prepare tax documents, file tax returns and provide tax planning advice to help you strategize how you can minimize your tax liability for next year. Also, as mentioned above, CPAs can represent you if the IRS has questions about your return or you’re audited, which is an important consideration.

    
2. Financial information about your income as well as documentation for taxes that you’ve already paid.
3. Information about foreign bank accounts
4.  
5. An outsourced CFO is a finance leader outside of your organization that provides top-tier finance, business, accounting, and operational guidance for your business. An outsourced CFO is usually not an employee of your company and accordingly will come at a much lower cost in comparison to a full time CFO.

1. If you have received a form 1099-K from a credit card payment processor, we strongly recommend that you consider hiring a CPA professional. If you do not reach the threshold for receiving a form 1099-K, we usually perceive this as “low risk” and suggest that you consider an automated solution, such as turbo tax.

    

1. A Certified Public Accountant (CPA) is an accounting professional who has met state licensing requirements to earn the CPA designation through educational training, experience and passing the CPA Exam.

    

1. It depends on where you are in your business journey! When you are just starting out as an entrepreneur (less than $20K in total sales), you will need to wear many hats, including this one. Once you are over this threshold, we strongly recommend that you outsource your bookkeeping to someone who has an account background AND understands e-commerce. Be cautious, as you select your professional – revenue recognition and inventory accounting are
   extremely important areas that many inexperienced (ecom) bookkeepers make mistakes with!

    

1. Our bookkeeping onboarding calls typically take 1 hour and our sales tax onboarding calls typically take 30 minutes. If you partner with the right accountant, and provide them with their own “read only access” to the appropriate accounts, they should be able to provide timely and accurate financial data to you!

    

1. Generally speaking our firm is not fond of debt, however we do understand that it is necessary in certain scenarios. Since most of our clients are ENTREPRENEURS and not CORPORATIZED businesses, we always encourage our clients to try to EARN interest instead of PAY it. Shopify, PayPal, and Stripe all offer cash advance options, but the interest rates typically are very high. When are clients are looking to borrow, we typically suggest that they look into SBA loans first as the interest rates tend to be cheaper.

    

1. In the most basic accounting class, you learn that “Debit is left and credit is right”. Debit and Credit are complex accounting terms and cannot be understand without a deep understanding of accounting. As an entrepreneur we suggest that you ignore this concept and instead focus on hiring a great bookkeeper or accountant for your business.

    

1. Accounts Receivable are funds that are expected to be RECEIVED from outside parties. Accounts Payable are funds that are expected to be PAID to outside parties. These terms are relevant for companies that prepare their books on an “accrual basis” of accounting.

    

1. Most accounting softwares are now automated with bank and credit card feeds to import transaction history. Once transactions are imported, the bookkeeper is required to categorize the transaction. For example, a Facebook Advertising Charge of $900 should be categorized as “Advertising” on your financials.

    

1. As an eCommerce seller, you need to consider sales tax compliance in jurisdictions for which you have nexus. Nexus is a tax term that essentially means presence. There are two types of nexus, physical nexus and economic nexus. Sales tax is a tax paid to a local governing body (State or Local) for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. Subsequently the seller is obligated to remit sales taxes collected into the state or local tax authorities.

    

1. Business profits are simply your business revenues less your business expenses. E-commerce businesses are typically high volume transaction businesses so this is a definitely a simple answer for a very complex exercise!

    

1. The IRS requires that you keep receipts and/or invoices for all business transactions. This is a bit of an archaic task, but generally speaking, (in our experience with IRS auditors) bank and credit card statements are sufficient evidence to support your tax returns and the IRS will ask for invoice and/or receipts for the more material (largest) items that you have reported. For
   example, $2,000 of meals deduction is likely immaterial but $200,000 of inventory spend is material. Under audit, the IRS would likely ask for supplier invoices but not your meals invoices.

1. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

    

1. Shopify Accounting can be defined as the process of recording financial transactions pertaining to a specific Shopify business. The accounting process includes analyzing, summarizing, and categorizing these transactions for purposes of reporting them to company management, oversight agencies, regulators, and/or perhaps tax collection entities.

    

1. It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce and Shopify accounting.   In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically.   Some of the complexities surrounding Shopify businesses include: Shopify state sales tax collection, bookkeeping for Shopify, payment processor revenue recognition and inventory accounting.

    

1. It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce and Amazon accounting specifically. In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically. Some of the complexities surrounding Amazon businesses include: marketplace facilitator sales tax rules, accounting for Amazon sales, revenue recognition, and inventory accounting.

    

1. It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce accounting specifically. In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically. Some of the complexities surrounding ecommerce businesses include: Sales Tax rules, Accounting for Sales, E-Commerce Revenue Recognition, and Inventory Accounting.

    

1. Sales taxes should be collected if your business entity (which owns your Shopify account) has nexus in a particular state AND is Applyed to collect and remit sales taxes to that same state. It is important to note that nexus can occur in many states simultaneously depending on the physical location of the business as well as the sales volume in each and every state.

    

1. Shopify does not pay sales taxes on behalf of the owner of the Shopify account. Shopify allows the business to collect sales taxes from customers, HOWEVER the Shopify business owner is required to (outside of Shopify) Apply for sales tax and remit (pay) sales taxes into the appropriate jurisdictions.

    

1. Traditional accounting tasks focused on a business that has an Amazon sales channel. There are three factors make Amazon accounting more complex than usual:

   Cash or bank related activity do not always correspond with revenue related activity. For example, bank deposits from payment processors are ordinarily not revenues, but instead include a combination of merchant fees, refunds, chargebacks, and revenues.
   Accounting for inventory. For accounting purposes, the cost of inventory can only be expensed on the income statement when the individual units are sold. For example, if there are 10 units of inventory purchased, and 2 are sold to customers, then 2 units of inventory are eligible to be expensed on the income statement while the other 8 units are not yet deductible and must be included on the business’s balance sheet.
   For a successful online seller, there is often a very high volume of transactions that need to be accounted for.

1. Unfortunately this means that your Quickbooks revenue recognition is probably not correct. It’s very likely that your local accountant or bookkeeper does not fully understand your Shopify Payment Processor Revenues!

   The deposits that hit your bank account from Shopify Payments, Paypal, Stripe, or other 3rd party payment processors are not your revenues. Instead these deposits are a net number that includes, refunds, chargebacks, credit card processing fees, and potentially other items! Revenue recognition is the most common area for which we notice that most Accountants (that don’t specialize in Shopifying Accounting) make mistakes!

1. Unfortunately this means that your Quickbooks revenue recognition is probably not correct. It’s very likely that your local accountant or bookkeeper does not fully understand your Amazon Revenues!

   The deposits that hit your bank account from Amazon are not your revenues. Instead these deposits are a net number that includes refunds, chargebacks, Amazon Fees, Market-Place Sales Taxes and potentially other items! Revenue recognition is the most common area for which we notice that most Accountants (that don’t specialize in Amazon Accounting) make mistakes!

1. The answer is (for the most part) yes.

   Amazon calculates, collects, and remits tax on sales made by merchants shipped to customers located in the states that have enacted Marketplace Facilitator (or similar) laws. These laws, which have been adopted by almost every single US state, shift collection responsibility from the merchant to the marketplace facilitating the merchant’s sale.

   In plain English, this means that, for most states, Amazon is obligated to handle all sales tax filing obligations that are triggered upon the sales transaction with the Amazon customer.

1. A Marketplace Facilitator is a business who owns, operates or controls an electronic (or physical) marketplace and facilitates the sale of a third-party Seller’s products.

   In the e-commerce world, Amazon, Ebay, and Walmart are common examples of “Marketplace Facilitators”.

1. Amazon sellers ordinarily do not need to Apply for a sales tax permit.

   Although sellers ordinarily do not need to Apply, there are certain scenarios for which you will need to Apply for sales taxes and/or file sales tax returns. Some of the examples include:

   Resale (re-sale) Certificate Compliance
   Multi-channel Sellers
   Other Specified Nexus Rules determined by certain states.

Resale certificates allow business owners, to buy or rent property or services tax free when the property or service is resold or re-rented.

A common scenario for e-commerce businesses is when a seller acquires goods from a US based supplier or manufacturer. In many cases the supplier or manufacturer is required to charge sales tax upon the sale of goods to customers (including you as a reseller) UNLESS they are provided with a resale certificate.

We highly encourage all e-commerce entrepreneurs to consider Applying for a resale certificate to avoid paying sales taxes on goods that they plan to re-sell.