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Top 6 eCommerce Accounting Basics You Must Know

The eCommerce market is booming, and as the trends suggest, it will not slow down anytime soon. E-commerce growth has been tremendous over the past few years, and the numbers vouch for that. 

About 218.8 million consumers are estimated to shop online in 2023 in the US alone. 

E-commerce sales are forecasted to account for approximately 20.8% of global retail sales. 

Speaking of numbers, accounting is one of the most crucial aspects for eCommerce businesses, particularly small businesses; however, there is more to eCommerce accounting than merely calculating profits and losses. It helps gain key insights into your business health and tax planning

Regardless of how clichéd it might sound, basics matter, and that applies to eCommerce accounting. Sticking to basics helps prevent small problems from snowballing into big ones. 

Here is a quick rundown of the top 6  eCommerce accounting best practices to keep your business optimally healthy and profitable. 

1. Pay attention to inventory management. 

eCommerce tax accountants recommend paying attention to inventory management. Striking the right balance is the key here as your business must neither run short of adequate inventory nor should it be excessive more than needed. 

2. Calculate the other key expenses.

Your eCommerce business will have certain fixed costs that cannot be avoided regardless of whether sales happen or not. 

These fixed costs, such as salaries, insurance, property tax, rent, utility bills, and loan repayments, must be calculated and managed well, as it is an indispensable part of accounting for an eCommerce business. 

3. Figure out your sales rates.

Next up, track your profits before tax. Keep a close eye on your business’s sales and connect your eCommerce store with Google Analytics, as it will help you a great deal. 

To arrive at your profits, deduct the functioning costs, costs of items sold, and also the rate of interest from the total revenue. Tracking sales rates is of utmost importance to eCommerce growth. 

4. Figure out the break-even point.

What is a break-even point in the first place? 

The break-even point refers to a point where profits are equal to the costs.

You can use this simple formula to calculate the break-even point. 

Break-even point: Fixed costs/contribution margin 

The contribution margin can be calculated by subtracting the variable costs from the sale price. 

5. Get robust eCommerce accounting software. 

Whether it is about accounting for a small eCommerce business or an established one with a massive client base, robust eCommerce accounting software will be indispensable. 

You will only thank yourself for Investing in good eCommerce bookkeeping and accounting software. It will automate mundane tasks and ensure accuracy across all key aspects of accounting. 

6. Watch your cash flows. 

eCommerce accountants advise you to keep track of your cash flows

At the end of the day, your eCommerce business strives to make profits, and hence taking into account the following aspects will help you a great deal. 

  • Due date of your receivables. 
  • Payday for your employees.
  • Note the timing of your cash flow. 

You must know the source of your cash flow and also where the money is going to have a strategic plan at hand. 

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