Accounting for eCommerce: Your Passport to Long-Term Success

Accounting for eCommerce: Your Passport to Long-Term Success

Accounting is often ignored when working for a business that sells over the Internet. But making a record of your numbers is essential to sustained success. How do you know if your business is profitable or not? Can you tell me where your business is in terms of growth? What do you think are the most profitable activities for your company? These are just two of the many questions for which eCommerce accounting can provide answers to you.

What is eCommerce accounting?

eCommerce accounting refers to keeping a record of financial data, including the transaction activities of the eCommerce business. This is a specialized subset of small business accounting intended for eCommerce merchants.

Simply put, accounting is about recording various transactions as either revenue or expenditure. Though this may seem like a simple thing to do, it is not easy because accounting terms are very confusing for inexperienced people in the finance business.

Let’s look at the key components of eCommerce accounting

Purchase order: Purchase orders are legally binding documents issued by clients detailing their needs.

Sales order: A sales order is prepared by the seller in response to a purchase order and entails goods description, price, quantity, payment information, and the date and place of delivery.

Cost of goods sold (COGS): This is referred to as cost of goods sold (COGS). These are costs such as stocking, shipping, and credit card fees directly linked to selling goods but not indirect overhead costs.

eCommerce sales tax: This is known as a destination-based sales tax, whereby eCommerce sellers must pay this sales tax to the jurisdiction of their customers. However, it applies only if there is a sales tax nexus between the state and the person selling, and a state has the right to tax the said entity.

Accounts payable and accounts receivable: The accounts payable are composed of various types of due bills and invoices, whereas the accounts receivable are the total of all expenses as well as revenues to be cleared in a firm’s account.

Best eCommerce Accounting Software

The following are some of the most suitable small business accounting software you can pick for your eCommerce business.


Xero is online accounting for SMBs. The system boasts more than eight hundred integrations, flexible invoicing, double-entry bookkeeping, and budget management. You can have as many users as you need with various account control levels on Xero.

QuickBooks Online

Most of your tasks in an eCommerce business can be taken care of by QuickBooks online. It integrates with a well-known sales channel, i.e., Shopify, thereby avoiding redundant inputs in a store’s accounting system. It has automated tax calculations, smart revenue reconciliation, and trending analysis that make it easy for you to manage your finances.

Zoho Books

Zoho provides you with one place to keep all of your bookkeeping stuff without compromising on security. The software will enable you to deal with invoices for your company, reconcile bank statements, and maintain controlled spending in one place. The automated workflows prioritize tasks while making operations easy through app notifications, field updates, etc.

eCommerce Accounting Best Practices

Accounting rules differ within a country or even between countries, hence there is a need to keep yourself updated. However, even without much accounting knowledge, some simple rules can give your e-business process a good direction. Adding some functionality using a custom eCommerce website development service can help you as well.

For both new and experienced online store owners, here are some accounting best practices to consider:

Practice good bookkeeping

Effective eCommerce accounting requires you to balance your books. Ensure that every financial transaction is correctly documented, from income to expenditures such as purchases and sales. This practice will help you gain insight into your finances.

Regularly reconcile accounts

Form a routine to check the bank’s statement and financial records for accuracy. You can spot these mistakes early enough and avoid the danger of catastrophic consequences.

Monitor cash flow

Monitor inbound and outbound cash flows. A financially healthy business requires a positive cash flow. However, any negative cash flow should be tackled immediately.

Understand sales tax

This can be complex for eCommerce businesses, especially about selling to customers in foreign states or countries. Know the amount of tax you are required to collect, keep good records of taxes collected, and pay the correct amount of tax to the state.

Use an eCommerce accounting software

A lot of accounting software solutions work together with eCommerce systems for their implementation online. These units of computing can be used for reconciling and managing your accounts on sales, expenses, and stock management.

Embrace automation

Use technology that would help in the computerization of many bookkeeping functions. The software will help you send out an invoice, account for sales, and compute your tax liability. It saves time and reduces the incidence of bookkeeping mistakes.

Maintain inventory control

eCommerce businesses depend on effective inventory management. At this point, you should know what is selling well, what isn’t, and a list of inventory. Assess whether your accounting software incorporates inventory tracking and, if not, choose an efficient inventory management tool to facilitate the procedure.

Take Control with eCommerce Accounting

Having understood much about the accounting of eCommerce, you are ready to manage your finances with confidence. You should recall that you are not supposed to handle it single-handedly. You can also get assistance from experts offering custom eCommerce website development services to help you navigate through your business’s accounting process with ease.

eCommerce accounting software tracks sales, records expenses, calculates taxes, and performs other functions with just a click or two.

It is also important to keep in mind that sound accounting is part of the support system for your company and should be given as much attention as other vital features of an e-business enterprise to guarantee continued profitability and growth.