Bookkeeping For Ecommerce Companies

Bookkeeping For Ecommerce Companies

The process of accounting and bookkeeping can be one of the most tedious activities business owners need to take care of constantly.

However, these two become more prominent as your business venture expands outward. Finances can become more complex as you receive more data on sales, payments, miscellaneous fees, and other cash flow transactions. These must be catalogued and categorized orderly, as tax authorities require clean business records.

If your business has yet to implement a proper bookkeeping and accounting system, this can cause further disruptions when you do get to organizing your financial data. We’ll be going through some of the benefits of having a proper bookkeeping system and some solutions you might want to use for your growing ecommerce company.

Why have a good bookkeeping system?

Bookkeeping allows a business owner to make informed decisions using the data gathered over time. Not only does it aid decision-making, but it also helps your accountant as organized accounts generate accurate reports that measure your business performance accurately. Some other benefits include:

  1. Fine-tuning your business model

The data gathered through bookkeeping procedures helps judge whether your current business model is competitive and viable. Accurate data allows you to determine your business’s strengths and weaknesses, what products are performing well or underperforming, and potential avenues for improvement using the resources you have on hand. It also ensures that any fees that may appear during the end of an operating month will not come as a surprise, ensuring you stay on top of the operations and taxation front.

  1. Tax Compliance and Preparations

Keeping a clean record of your financial data will save you both cost and time when tax season comes up. You’ll be able to stay compliant with whatever state tax regulations you may be subject to, steering clear of any potential fees and penalties. Tax Planning is also an open option to those with proper financial records, as you and your accountant can develop strategies to ensure the most ecommerce tax deductions possible for your business.

  1. Higher potential for a successful sale of the business

Lastly, companies looking to sell the business to future investors will be in a great position should they commit to bookkeeping from the start. Bookkeeping is a complex process for most small business owners, with nearly half of the small businesses not employing a bookkeeper or accountant in 2018. Financial statements filled with inaccurate data will probably make buyers question whether or not buying your business is worth it, even before any negotiations start. If you are not employing a sound bookkeeping system in your business, now is the time to get a start on it.

bookkeeping for ecommerce businesses

Bookkeeping Methods for Your Ecommerce Company

There are a variety of methods that your ecommerce company can make use of. Your choice in this aspect depends on the number of transactions your business receives, such as revenue and expenditures. Specific methods are meant for smaller operations and ones more in line with larger enterprises and companies.

  1. Single-entry Bookkeeping

This method is meant for newly formed businesses or ones that only handle a low volume of transactions. Usually, companies at this stage have financial records that have yet to become as complicated as more extensive operations. Here, most transactions are recorded within one category through either a cash book or data entry software. Most business owners use Income and Expenses as their categories of choice, all registered under a reference number that helps track down transactions. Bank Reconciliation is also done here to match the total recorded in your cashbook and your end-of-month bank statement.

  1. Double-entry Bookkeeping

This system expands upon the single-category system of the previous method, where transactions and financial data are entered into two accounts as either debits or credits. This is mainly for businesses whose volume of transactions is more significant than can be accommodated by the single-entry system. It’s also for those companies who deal in credit-based sales where full payment is deferred to a later time.

The second entry is kept on a bookkeeping ledger under debits and credits. Professional bookkeepers are knowledgeable in categorizing whether a transaction should be labelled as one or the other. However, there is a guide to figuring out which is which through the “accounting equation”, which is made up of the following:


In this equation, assets refer to the resources that the business owns. This includes personal cash and physical resources such as business computers and inventory. Liabilities are the amount the company owns, also known as a financial obligation. This category takes into consideration the accounts payable by the online business. Equity refers to the assets introduced into the industry and the ownership of these assets. These are also the company’s profits or losses, denoted by either a net gain or loss.

Cash- or Accrual-based Bookkeeping

Depending on the product offered by your ecommerce company, you can opt for either a cash or accrual basis for your bookkeeping initiatives. Both of these affect the way your company recognizes gained revenue. Using a cash-based method makes it so that the cash you receive is immediately recognized as revenue. Expenses are also recognized and recorded as soon as you pay for them. You register the transaction only when cash exchanges hands, making it a simple way of dealing with bookkeeping.

For ecommerce businesses that deal with deferred payments or maybe SaaS services, they may want to go through with an accrual-based method. This is where revenue is only recognized once earned, whether through the completion of a promised service or the delivery of a specific product. When employing this method, you may notice that it doesn’t require a particular cash exchange to record the transaction, with money not entering or exiting your account until a specified time.

Both of these methods are valid for single- or double-entry bookkeeping methods. However, using cash-based bookkeeping for the single-entry process is a common practice. Accrual-based methods are also better implemented in double-entry bookkeeping systems. Discuss with your bookkeeper or CPA firm which way is best for your business.

Why You Should Consider Professional Bookkeeping Services

Financial Literacy in the realm of small business owners is surprisingly limited, with 40% of small business owners considering themselves illiterate in this regard. However, many of these small businesses are recording and managing their finances. Professional help in managing your company’s finances can help you survive turbulent times and gives you a degree of future-proofing for your company.

This is why some small businesses refer to professional bookkeepers and CPA firms to aid them in business management. The responsibilities of an ecommerce company include meeting client demands, inventory management and tracking, and responding to return requests, among others. Having a professional manage your financial records and data is excellent for keeping your business competitive with others in your trade.

Business Strategy Consultation

Your chosen bookkeeper can help you navigate through financial troubles. CPA firms specializing in online sellers have the experience to aid you in matters that might affect your operations. They can also help mitigate the effects of internal company issues and advise you on actions to maximize returns for your business. Cash flow analysis and Revenue Expansion are many ways CPA bookkeepers can help you find the strategies needed to make your business soar.

Maximizing Tax Benefits

Professional Bookkeeping firms aid business owners in filing their taxes and showing them potential exemptions and reductions that can be applied. Business tax is different from personal taxes, with some expenses, such as utility spending, being able to be written off of the final amount of tax owed. CPA Bookkeepers are pretty knowledgeable and can raise your tax deductions substantially.

Better Relations with Lenders and Banks

Using CPA Bookkeepers ensures that your business has detailed and accurate records of your activities and transactions. This can be an excellent sight for banks and lenders who may see small businesses and startups as risky clientele. Your complete documentation will make them more eager to consider your request for financial loans or mortgage deals.

If you’re interested in the benefits of proper bookkeeping for ecommerce companies, you may want to check out what Free Cash Flow can offer you. Our team has over 20 years of experience in accounting, taxation, and consultancy services for online business owners.

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