Ecommerce accounting is crucial for your business to keep tabs on your financial data. You need to monitor sales, cash flows, returns, banking fees, and supplier payments. In addition to that, you should file taxes to ensure that you abide by the law. Here is an indispensable guide that you can follow for your accounting tasks.
Systemization is one of the essential accounting tips that you need to grasp. You can use cash basis accounting or accrual method to organize your finances. On a cash basis, you record whenever cash hits your bank account or when you spend it. On the flip side, the accrual method outlines sales and expenses before they land on your business account.
Essential Things to Have for Accounting
For starters, you need an eCommerce business tax ID number to account for your money. For a partnership or corporation, you can request an EIN from the IRS. Sole traders can use their SSNs with sheer simplicity. Next, your business bank account that is free from personal finances is essential. Plus, accounting software is a must-have to assist you in recording your finances.
As part of accounting tips, you need to categorize all your transactions. It is the foundation of accounting that you can’t fail to do. An app can arrange the categories for you, including salaries, marketing, and returns. The practice will determine all your expenses and monthly revenues.
Maintaining Your Budget
Ecommerce accounting isn’t complete without budget maintenance. Thus, you should update your cash flow and expenses. Ensure that you save money for taxes and a rainy day. Paying or reducing debts is the best way to propel your business to greater heights. Record every penny that you spend in your company to simplify the process.
Monitoring Your Taxes
You need to track your sales taxes and business income taxes. Most importantly, set up the correct tax rates for your clients and customers. Your eCommerce business has to pay approximate taxes to the IRS. Also, you should file the sales tax that comes from your customers.
Record Returns and Chargebacks Separately
Customer returns come in the form of return policies as store credit and full refund. For store credit, you will record the transaction under expense which will add to accounts payable. A full refund means that you categorize it on the returns and allowance list and subtract it from your revenue. Chargebacks occur when a buyer disputes a transaction, claiming it as fraudulent. You will record under returns and allowance as it is an expense.