3 Essential E-commerce Bookkeeping Practices You Should Know
Brick and mortar shops have many similarities with online businesses. Although most of their transactions may appear similar, such as the computation of break-even points and inventory archiving, they still have their differences when it comes to how these processes are computed and charged by different tax authorities.
Accounting for e-commerce companies
Being familiar with these particular rules is a requirement for online business owners who want to make sure that their financial data reflect accurate results. Because of this, e-commerce websites need to employ special accounting practices to keep track of the different tax policies involved in making online business transactions.
In this article, we will share three accounting tasks that are necessary for running an e-commerce business:
1. Dealing with e-commerce sales tax
Accounting for your sales tax can be tricky, especially for e-commerce businesses. Unlike an on-site transaction through a retail store that only needs to deal with the respective region’s sales tax requirements, online stores need to be on top of different prerequisites depending on their local address and their customers’ addresses for delivery.
Dividing your products as taxable or tax-exempt will help you when adding charge sales taxes. However, the next step will require you to consider specific fees on cities, counties, and even countries. This is made more complicated when you have to consider international shipping because it will mean extra variables included in logistics delivery. Because of this, many e-commerce platforms use a tax table to determine how different taxes will be depending on one customer’s location.
Your company is responsible for keeping track of remitting the different tax authorities per fiscal quarter. It would be best if you considered listing these additional tax collection values under your liabilities to set aside and delivered for payment to the required departments. To avoid causing errors in your accounting, keep in mind that these transactions are recorded as payment received, and not when the products are delivered.
2. Addressing shipping and other logistics
Many e-commerce platforms offer free shipping costs to attract customers to purchase their products. The trick to ‘free shipping’ services is that the product’s intrinsic value with an average allowance accounted for concerning various logistics fees. However, if a business is unaware of the variable shipping rates that are incurred with the delivery of the item, it can lead to lower profit margins.
Inexperienced business owners may be confused about the results of the expenses they’ve incurred over their Cost of Goods Sold (COGS). This is why understanding your business’ spending on shipping and logistics delivery costs will allow you to set a fair price to your customers while still getting profit. If you’re making use of a flat rate in shipping, there can be discrepancies on your COGS, depending on the varied shipping fees. If you want to maintain accurate accounting data, you should set aside COGS shipping expenses and incomes to avoid the need to dissect each product transaction.
3. Managing online-based chargebacks
Although dealing with cashback is also apparent with retail businesses, e-commerce companies also need to deal with not only product and credit returns. They will also need to deal with the complex digital backtracking that needs to be charged back due to fraudulent purchases.
Your chargeback fees need to be categorised in your books under Returns and Allowances so that your profit margins will remain accurate. Doing this will allow you to handle chargeback losses properly while presenting your financial data forecasts without any issues on including invalid transactions.
Online business transactions can be confusing for business owners who aren’t familiar with the differences and similarities with brick and mortar purchases. You should make sure that you’re always updated with the changes in both local and international state laws so that you can accurately expand your business’ operations without incurring losses due to inefficient bookkeeping practices.
Outsourcing your accounting duties is an excellent way to divide your responsibilities as a business owner while maintaining your e-commerce business’ growth and expansion. If you’re looking for professional accountants in Gold Coast to handle your company’s bookkeeping, our team of experts can give you a hand. Get in touch with us today to see how we can help overcome your accounting needs!