Bookkeeping for e-commerce works differently than bookkeeping for traditional trade businesses. Whether you make money selling on Amazon, eBay, Shopify or any other e-commerce platform, your business has industry-specific needs which need to be factored into your accounting and bookkeeping processes.
This guide will talk you through how to maintain accurate books and use accounting knowledge to grow your e-commerce business.
Using accounting to your advantage
As an e-commerce seller, management accounting is going to be most valuable to you in terms of growing your business as it helps you to zero in on specific areas of your business. Put simply, management accounting involves using the numbers to back up and guide your decisions as an entrepreneur.
What are bookkeeping and accounting?
Bookkeeping is the day-to-day recording of financial transactions, such as sales and purchases. Bookkeepers are then tasked with storing this information and organising these transactions into the correct business area.
The data accumulated by bookkeepers is later passed on to accountants whose job it is to carry out analysis and create reports. The objective of accounting is to gauge the financial health of a business and help management to make informed critical business decisions.
Financial accounting vs. managerial accounting
On top of all this, accounting can be split into two categories: financial and managerial accounting. The purpose of financial accounting is to analyse historical financial data in order to create financial statements. These statements reflect how the business has performed so far and predict what the future may look like.
Although important, the value of financial accounting is limited because it is highly standardised. As an e-commerce seller, you will find management accounting far more useful because it is industry-specific and allows you to focus on specific areas of your business. You will be able to assess profit by product, product line, geographical location and so on. What’s more, it facilitates forward-planning analysis by allowing you to simulate different market conditions.
Accounting and bookkeeping are integral parts of any successful business. If a business doesn’t keep track of the money it is making and spending, it’s impossible to know whether it is currently making any profit or forecast future profits. Plus, an accountant needs this data to create complete financial statements, as well as to prepare accurate taxes.
Why are bookkeeping and accounting important?
E-commerce is a particularly fast-paced industry; success depends on you having accurate and reliable key performance information available at your fingertips. The annual tax filings and quarterly or monthly business reports which many traditional businesses rely on are simply too infrequent. As an e-commerce seller, you need to be able to measure not just overall real-time business performance, but every part of your business. In turn, this will help boost the profitability of your business by knowing which product, market or area to focus on.
Ever looked at your product range and struggled to work out which products are bringing in the most profit? Management Accounting will allow you to answer questions like: Which products should I axe? Which should I double down on? Will this product still be profitable if the supplier raises the cost price by 5%?
What should be done with Amazon statements?
The settlement reports you download from Amazon’s Seller Central are notoriously confusing. However, once you remember what makes Amazon statements different (and more challenging) they’ll make a lot more sense.
If you’re one of the 2.2 million Amazon sellers worldwide, you’ll be aware that twice a month Amazon deposits your earnings into your bank account. It’s important to remember a few things:
- The amount you receive represents gross profit, not actual sales.
- The statements provided by Amazon are usually for a 14 day period, not a month. Over time, the dates on your Amazon statements will be completely different from your monthly dates.
- Amazon statements will show you the total of the deductions made by Amazon, without giving you an in-depth breakdown of what these charges are for.
Reconciling your sales data from Amazon is not particularly simple. But a few small changes could make the whole process a lot easier. Here’s what we suggest:
- Start by recording the total value of sales of your products on Amazon as sales revenue.
- Maintain your books as monthly statements – this will help you to focus on monthly performance.
- Breakdown your Amazon deductions into different fees – this will help you understand which of your Amazon fees are fluctuating and how much you are paying for using the Amazon platform.
Implementing accurate accounting for e-commerce
Whichever e-commerce platform you sell on, implementing industry-specific accounting practices is vital to helping you achieve your business goals. Unfortunately, e-commerce platforms like Amazon do not make it easy but with the right bookkeeping and accounting service, you will be able to understand the numbers and start using management accounting to help you make more informed business decisions.
OSOME is familiar with all the nuances that go with accounting for e-commerce. Our UK-based, qualified accountants are experienced working with Amazon, eBay, Stripe, Shopify, Paypal, Magento and many more popular e-commerce platforms. Plus, we’re used to working with e-commerce sellers who sell in countries all over the world and therefore need to take into account numerous different VAT rates, tax implications of a different part of the world and understanding of each sector’s performance.
Prices start from £145 per month. Request a callback today.