Managing a business is not just limited to managing its finances. The process also involves paying equal attention to divisions such as inventory management, ensuring the satisfaction of the customers, and marketing and selling of the brand.
Managing the finances of a business is one of the essential steps of a successful business. A proper balance sheet of the business matters at the end of the year and is also helpful in making major decisions at any time.
Bookkeeping for e-commerce helps business owners keep track of important aspects of the business, such as profits and losses, and understand the customer’s inclination towards the business.
What is Bookkeeping for E-commerce?
E-commerce bookkeeping is the process of maintaining a business’ finances by recording and tracking all expenses along with other essential monetary details.
The process involves recording, storing, and organizing all the setup’s financial details and making required changes in the favor of the business. The procedure is also important to maintain the business’ health by planning the revenue and expenditures for that perfect balance.
The data is also helpful for forming important reports and financial statements such as balance sheets. Profit and loss statements, cash flows, and forecast statements to keep the business aligned in the right direction.
Bookkeeping for E-commerce is also termed as the initial step in the whole accounting procedure of a business.
Steps in E-commerce Bookkeeping Practices
- Categorizing Transactions– Categorizing the transactions of a business helps to define its profit and loss with a clear picture. Hence, it is an essential part of e-commerce bookkeeping. It involves segregating the transactions into different categories according to their purpose. These transactions can also be recorded and divided manually in separate spreadsheets. An e-commerce accounting software aids in recording and categorizing transactions with professionalism and ease.
- Managing Account Payables and Receivables– Another important step involves recording and categorizing the amount to be paid and received by the business, such as employee wages or PPC costs. It helps the e-commerce accountants maintain the budget of the business and create a cash flow accordingly. The information is also useful to keep track of unwanted expenditures and cease such forms of activities.
- Maintaining Invoices– Bookkeepers also create and maintain the invoices sent to customers to confirm the transactions. The e-commerce bookkeeping software also helps record, create, and maintain invoices for hassle-free financial transactions of the business with complete accuracy. These invoices, too, are helpful while making financial documents and reports in the future.
- Inventory Management– Another advantage of e-commerce bookkeeping is easy inventory management. One can keep track of the inventory and also restock inventory on time. Bookkeeping helps to identify the amount of assets belonging to the business, hence defining the company’s net worth. Bookkeeping is also required to create different types of financial reports and business statements.
Types of Ecommerce Bookkeeping
Bookkeeping done by the officials of the business itself or with the help of an accounting outsourcing service provider helps easily maintain, manage, and record the business’s financial transactions. Bookkeeping is divided into two types depending on the type of business:
- Cash Basis
Recording each financial transaction of the business when the transaction is reflected in the bank account is known as cash basis bookkeeping. The method is easy and simple without any complications.
May it be money going out of the business or money gained by the business, the transaction is recorded once it is reflected by the bank. It is the perfect form to be practiced by small businesses and startups.
Though cash basis is a simple bookkeeping format, it also has its share of back lacks. The method doesn’t account for the business’s liabilities and receivables, which is essential for huge setups while making financial reports or statements.
The method is also inaccurate for making proper and detailed cash flows and finances.
- Accrual Method
The accrual method is poles apart from the cash basis method. The method involves recording the transactions based on events rather than waiting for the financial transaction to be reflected in the account.
For example- If a business makes sales in the 1st week of a month and ships the products in the 2nd week, it will be recorded in the books in the 1st week as the transaction took place during that time.
Though the method is complicated and a bit tough to understand initially, it is also helpful to give a clear picture of the company’s different activities, stating the profit and loss incurred as well.
Benefits of E-commerce Bookkeeping for a Business
- Tracking Inventory– Whether it be an online store or a physical one, keeping track of inventory is essential. It helps identify the customer’s favorite options and the ones least opted for. Hence, the business can invest money in the right products to avoid losses. Tracking inventory also helps in timely restocking and avoiding shortages to maintain a smooth flow. The process also helps to decide when to organize sales and promotions over products to clear the less-selling items.
- Improving the Financial Health of the Business– Maintaining a business’s financial records helps the accountant look at such data and prepare different financial reports easily and accurately. Neglecting the procedure ceases the business’s growth and leads to its downfall faster. Financial reports aid in analyzing the growth and weak times of the business and hence prepare perfect strategies to boost sales in the future. Therefore, bookkeeping for e-commerce plays a vital role in maintaining a business’s position in the market.
- Ease in Tax Calculation– Avoiding proper recording of financial transactions of a business and calculating the tax at that one day creates chaos for the accountant and also increases the chances of making many mistakes, causing one to pay different penalties. Hence, maintaining proper financial records helps an accountant calculate taxes accurately and avoid penalties due to improper calculation.
Conclusion
E-commerce bookkeeping is a procedure of recording, maintaining, and organizing a business’s financial transactions.
Accounting outsourcing service providers help businesses reflect on their past activities and identify the sections needing more effort.
Professional bookkeeping also helps to make perfect financial plans to boost the sales of the company and maintain its smooth flow.
