Know the Basics: The Dos and Don’ts of Accounting Ecommerce

Michael Pignatelli
Nov 09, 2021

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

Ecommerce is a popular business model for those who want to work from home and control their own time. It's also an excellent way to grow your existing small businesses, as you're able to reach more customers around the world with ease. However, it’s not just about selling your products and making people buy from you. Certain key processes happen in the back end, but they’re just as important—one such process is accounting. So, if you want to get a headstart in the game, keep reading! 

This blog post will teach online entrepreneurs about the basics of accounting, including some valuable dos and don’ts. Accounting can be daunting, especially for beginners, but we’ll help you get through this phase and teach you what you should and should not do. 

The Dos in Accounting Ecommerce

When done with the correct practices, any activity can be easy and can create the right results. So keep this to-do list in mind to make the rather tedious accounting task manageable. These are essential yet can be done even by rookies in the ecommerce business. Let’s take a look: 

Do hire a bookkeeper and accountant.

Know the difference between a bookkeeper and an accountant, so you know what help you can expect once you hire them. You can look for freelancers or an ecommerce accounting firm that specializes in accounting for Amazon sellers and other online vendors. 

Bookkeeper: A bookkeeper serves as the scribe taking note of all transactions and categorizing all data accordingly. All documents, receipts, and invoices are kept neat and safely stored physically and, most times, in the cloud.

Accountant: You can rely on your accountant to help you make sense of all the data and transactions gathered by a bookkeeper. They create different reports and present them to you studied and analyzed. If you need financial insights for your business decisions, they are also the go-to experts. 

Do invest in cloud-based accounting software.

We are already in the era of accounting software, where everything is automated, and data is stored safely in the cloud. Some of the most common accounting tools are Quickbooks, Xero, and Sage50, and here are the services you can enjoy from them:

  • Live bookkeeping
  • Storage of receipts and invoices
  • Categorization of all transactions
  • Bank integration and reconciliation
  • Receiving and giving payments
  • Payment software integration
  • Inventory integration
  • Time and project tracking
  • Reports generation
  • People and system management
  • Taxes preparation
  • Invoice creation

There are various software you can manage on your own as a freelancer or a startup business. Still, it is best to let bookkeepers and accountants take this task from you when your business grows. 

Do separate your personal and business money.

Make sure that the money for your business is used exclusively for company transactions. It would be best to have a different bank account for your personal money and another for your business. It will make bank transaction tracking easier as it will reflect only ecommerce-related income and expenses.

Do use accrual accounting.

There are two basic types of accounting—cash-based and accrual accounting. Cash-based accounting records money as they come in and out of your bank account. This is usually used by ecommerce businesses with fewer transactions each month. Through it, you’ll have a real-time view of your income and expenses. 

On the other hand, accrual accounting considers money you haven't earned yet but is scheduled to come into your account and the costs that haven’t been out of the bank account but are expected to pay. These two are called accounts receivable and accounts payable in your accrual accounting sheet. 

Accrual accounting is the best type to use if you plan to scale your business because you foresee a month’s income and expenses right away.

Do know what reports you want to receive regularly.

Reports are essential to businesses, and they are even more critical for startup businesses. Getting reports will allow you to view your business financial status and check whether your business plan is working or needs adjustments. Some of the accounting reports you may want to get regularly are the following:

  • Cash management
  • Cash flow forecast
  • Profit and loss/Income statement
  • Balance sheet
  • Financial performance
  • Your key performance indicators
  • Financial statement

To get comprehensive and accurate reports, you should constantly update your books, so you’ll have a real-time view of your financial status.

Image alt: accounting for an e-commerce business

The Don’ts of Accounting in Ecommerce

After knowing the must-dos, here are the practices you should stop or never do at all. It will save you time and make your business processes more efficient. Moving away from these practices also allows you more time to do what you must and have smoother operations. 

Do not use cash-based accounting for a growing business.

Cash-based accounting entails the tracking of cash that comes in and out of your business in real-time. This practice may work if you only have a few monthly transactions. But the accounting process cannot cope with your growing income and expenses. 

With that, begin with accrual accounting which tracks all business transactions using accounts receivable and accounts payable. 

Accounts receivable: The money you have yet to receive

Accounts payable: The money you have yet to pay

With accrual accounting, you can plan your business budget monthly and get a view of your financial status on a monthly view. 

Do not do bookkeeping and accounting tasks on your own. 

Unless you are a trained bookkeeper or accountant, it is best to delegate these tasks to experts for accuracy and avoidance of tax-related problems when paying season comes. Many business owners take crash courses on bookkeeping and accounting in the hopes of acquiring the skills they need to do the job on their own and save money. 

Yet, hiring an accountant and bookkeeper is still worth the investment because a bookkeeper can keep your books updated so that you can generate up-to-date reports. Meanwhile, rely on an accountant for reports to give you insights into the financial impact of your business plans. With professionals working on your finances, you can focus on your business operations. 

Do not rely on traditional accounting methods.

Despite the advanced choices, some businesses still rely on traditional hard copy books and excel sheets, which have a lot of disadvantages. Data on paper is most prone to damage because of changing seasons, humidity, and even paper mites. On the other hand, Excel sheets are just stored on your desktop, which may be prone to file corruption and security breaches. 

In both methods, the risk of inaccuracy is higher compared with software because of the increased reliance on human input and formula creation. You can acquire little to no automation with paper books and excel sheets compared with automated software.

Do not cram tax computation days before the tax deadline.

Taxes are already difficult to handle as it is, but it gets even more burdensome when you have to cram it days before the tax deadline. Doing so means you would have to backtrack all the data you could not track for the past business year. While backtracking is a common task of bookkeepers, the lack of time can cause output inaccuracy or an incomplete report. The challenge heightens when you just hired a virtual assistant who does not know anything about your business. They may accomplish the bookkeeping, but their insights are not as reliable as someone well-versed in your industry. 

Do not make business decisions without checking your financial status.

There is nothing wrong with being optimistic and making all your plans happen against all odds—as long as they are within your company’s financial capacity. If you continue expanding your business without the funding or budgeting, you can end up with debt or wasted money. But if you maximize the data your bookkeeper and accountant acquired in forecasting cash flow, you can see where your money goes and make necessary adjustments that will not endanger your finances. 

Image alt: e-commerce accounting firm

Finally, Do Get Assistance From Unloop!

Unloop can assist you with your bookkeeping needs and take care of all your day-to-day tasks to have more time to work on other aspects of running the business. In addition, Unloop has invested in cloud-based accounting software like Quickbooks, A2X, and Hubdoc to keep everything automated and safe. 

Starting a business is an exciting endeavor, but it can also be overwhelming. To help you better understand the basics of accounting for an ecommerce business and what to do with your finances as your company grows, remember these dos and don'ts for accounting. 

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About unloop
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.
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