Build a successful omni-channel business

Get your products in front of interested new customers and drive sales

Start free trial
No items found.

Ecommerce Accounting - What Is It, Best Practices & Key Aspects

Running an e-commerce business can be both exciting and challenging. An online entrepreneur has to constantly juggle multiple tasks, including managing inventory, handling shipping, and staying on top of marketing efforts. However, one crucial aspect that should never be overlooked is e-commerce accounting. Proper e-commerce accounting is essential for maintaining financial health, complying with tax regulations, and making informed business decisions.

In this blog, we will delve into the world of accounting for online business, answering the most commonly asked questions around the unique aspects that differentiate it from traditional accounting practices. 

What is E-commerce Accounting?

Ecommerce accounting encompasses the process of recording, tracking, and managing financial transactions related to your online business. It involves organising and categorising revenues, expenses, and assets to gain a clear picture of your business's financial health.

What do ecommerce business owners need to keep track of?

Ecommerce business owners must keep meticulous records of sales, expenses, inventory, and taxes for e commerce tax compliance. Additionally, they need to monitor financial reports regularly to make data-driven decisions that can drive growth and profitability.

What Are The Key Aspects of Ecommerce Accounting?

Here is a rundown of what matters in the world of numbers when it comes to e-commerce.

1. Sales and revenue tracking from multiple channels

Ecommerce businesses often sell across various online platforms, such as their website, marketplaces, and social media. Effective accounting requires consolidating and tracking sales from all these channels accurately.

 2. Inventory management and cost of goods sold (COGS)

Maintaining accurate inventory records is crucial for ecommerce businesses. Accurate tracking of COGS allows you to calculate gross profit and ensure proper valuation of inventory.

3. Handling shipping and fulfilment expenses

Shipping and fulfilment costs are integral parts of ecommerce operations. Properly accounting for these expenses helps you understand their impact on your bottom line.

4. Dealing with returns, refunds, and chargebacks

Ecommerce businesses encounter returns and refunds regularly. Managing these transactions accurately is essential for maintaining an accurate financial record.

5. Tax compliance and sales tax considerations

Navigating tax regulations, especially in cross-border selling, is complex. Understanding your sales tax obligations and complying with them is crucial to avoid penalties and legal complications.

Best Practices for Ecommerce Accounting

Every business function has its best practices. Here are some when it comes to e-commerce accounting. 

1. Utilising cloud-based accounting software and integrations

Cloud-based accounting software offers flexibility, accessibility, and real-time data, enabling you to manage your finances efficiently. Integrating this software with your e-commerce platform can streamline financial transactions.

2. Implementing a proper chart of accounts and categorising transactions

A well-organised chart of accounts simplifies the financial reporting of e-commerce, making it easier to identify revenue sources and expenses. Categorising transactions accurately ensures that your financial statements are precise and informative.

3. Tracking and reconciling sales from different channels

Consolidate and reconcile sales data from various channels to gain a comprehensive view of your business's performance. This practice can help you identify top-performing platforms and optimise your marketing efforts.

4. Managing inventory and accurately calculating COGS

Regularly update your inventory records and apply the correct costing methods to calculate COGS accurately. This helps you make informed pricing decisions and avoid stockouts.

5. Maintaining organised financial records and backups

Keep a well-organised record of all financial transactions and back up your data regularly to safeguard against data loss. This ensures smooth audits and provides historical data for future reference.

Financial Reporting and Analysis for Ecommerce Businesses in UK

Reporting an analysis is an integral part of any business’s finance operations because they drive growth. Here are some must-follow practices for the same.

Generating regular financial statements, such as profit and loss (P&L), balance sheet, and cash flow statements:

Regularly analysing financial statements helps you understand your business's financial health, identify trends, and spot areas for improvement.

Analysing key performance indicators ( e-commerce KPIs) specific to e-commerce:

Track e-commerce-specific KPIs, such as average order value (AOV), customer acquisition cost (CAC), and customer lifetime value (CLV). These metrics offer valuable insights into your business's performance and customer behaviour.

Monitoring profitability and identifying areas for improvement:

Assess your business's profitability and identify areas where you can reduce costs or improve revenue generation. This analysis helps you optimise your operations for greater profitability.

Tax Considerations and Compliance in E-commerce Accounting

Tax can be a simple process if businesses partner with the right agencies that understand VAT regulations for e-commerce. Here are some important facets. 

1. Sales tax obligations in different jurisdictions

Ecommerce businesses must be aware of and comply with sales tax requirements in various jurisdictions where they operate or have customers.

2. Value Added Tax (VAT) regulations

For businesses operating in the UK and EU, understanding VAT regulations is essential to avoid penalties and non-compliance issues.

3. Proper record-keeping for tax audits and reporting

Maintain accurate and organised financial records to ease the process of tax audits and reporting, saving you time and potential fines.

Seeking Professional Assistance of Ecommerce Accountants

Outsourcing is the name of the game when it comes to focussing on what matters, when it comes to running an ecommerce business, provided you choose your accountants carefully. 

Benefits of working with experienced ecommerce accountants:

Experienced ecommerce accountants bring expertise and industry-specific knowledge, helping you navigate complex accounting challenges effectively.

Choosing the right accounting firm or professional:

Selecting the right accounting partner is crucial for ensuring that your ecommerce accounting needs are met with competence and reliability.

Evaluating the cost-benefit analysis of outsourcing:

Consider the cost-effectiveness of outsourcing accounting tasks compared to hiring an in-house team. Outsourcing can be a more efficient and budget-friendly option for many ecommerce businesses.

For a seamless ecommerce accounting experience, sign up for a free trial of the SHOPLINE platform at Manage your finances with ease and focus on growing your ecommerce business with confidence.

Related Articles

Buy Now Pay Later Services

Payment SDK & Payment Gateway

B2B Invoice Template for E-commerce

Small Business Accounting

Take the leap into the future with omnichannel commerce

Try SHOPLINE with our free 14 day trial to explore all of our smart commerce capabilities

Try for free