Xero is an easy to use but powerful online accounting system that’s designed specifically for small businesses. Think about how comfortable you are with money stuff, how fast your business grows, and how much money you have to spend. That should help you figure out whether you need an ecommerce bookkeeper or not. In https://www.bookstime.com/ the case of gift cards, a typical transaction involves receiving payment from a customer and giving them a gift card in return. This inflow of cash is categorized as unearned revenue in your books because no goods have been exchanged yet. Notice in all of these examples we never reduce the “sales” account balance.

• Many e-commerce platforms come with built-in inventory tracking features.
• In Xero, for example, you can group together data by transaction, project, and department.
• This document/information does not constitute, and should not be considered a substitute for, legal or financial advice.
• You sold 5,000 units, which cost your business $30,000 (according to the weighted average method).

Once you’ve settled on a business name, you’ll need to register your business in the state in which you will do business. You want your business name to reflect you as a person and the type of services you provide. Your business name is the first thing that lets customers, clients, competitors and others in the marketplace know about who you are and what you do.

Best practices for bookkeeping on ecommerce platforms

A bookkeeping solution should always serve to make things easier for you and save you time. If it doesn’t do this, you need to reconsider the tools you use. First and foremost, you must choose your bookkeeping solution and then connect it to your eCommerce store. This will act as the middleman and feed accurate financial data from your eCommerce store over to your bookkeeping solution.

When you have the right system in place for tracking payroll and payroll taxes, you can keep documents up-to-date. This ensures your hardworking team members get paid on time and have their taxes taken out. You’ll also have ecommerce bookkeeping useful records to refer to when tax time rolls around and you prepare your annual tax documents. When you choose an accounting ecommerce software, consider how it works with your online ecommerce and fulfillment platforms.

Weekly bookkeeping tasks

Rent, inventory, maintenance, income stream, and taxes are all in this statement. To ensure this doesn’t happen, sales tax needs to be recorded in your balance sheets rather than your profit & loss statements. Alternatively, many accounting software can accurately work out your sales tax for you and keep it separate from your eCommerce business income. The best accounting method for an online business depends on its size, complexity, and specific needs.

An ecommerce business asset may include inventory, cash funds, and equipment. On the other hand, liabilities are usually outstanding business loans or mortgage payments. Xero is a cloud-based accounting software that gives you real-time visibility into your e-commerce business’s finances. It’s easy to use and comes with a number of features, such as invoicing and inventory management. Finally, bookkeeping and accounting can help you make informed decisions about your e-commerce business’s future.

How to calculate sales tax and report it in your bookkeeping records

With the retail method, you first need to determine your cost-to-retail ratio, which expresses your markup percentage. In the example above, imagine the items you purchased for $4 per unit are sold to your customers for $6.40 per unit. The LIFO method is very similar, but with this method you assume that the most recently purchased items are the first to be sold. The LIFO method works well for retailers that are selling nonperishables such as clothing, books, jewelry or furniture. Over this quarter, you sold 5,000 units of inventory, meaning there was a total of 1,000 unsold. Since your March batch was the last “in,” you can assume the 1,000 unsold units this quarter are from the March batch, as everything in the earlier batches was sold first.

Xero provides cloud-based accounting software for small and medium-sized businesses. It offers a host of money management features including unlimited users, double-entry bookkeeping, and budgeting support. You can also customize your dashboard to review all your ecommerce metrics at once.

Net sales reflect your total sales revenue after subtracting returns, discounts, and allowances, which are discounts made for defective merchandise that customers keep. Startup accounting encompasses more than just bookkeeping procedures. For example, you need to choose an inventory accounting method and either the cash or accrual basis of accounting. The beauty of selling online is that you can sell on multiple sales platforms for relatively little additional costs compared to opening up multiple physical stores. This allows you to branch out and diversify your online presence. However, when you factor in all the different ways customers can pay for their goods online, you also need to factor in the merchant fees for different payment gateways.