Why is e-commerce accounting important for entrepreneurs? (2023)

Accounting is important for any business, but can get particularly complicated for an e-commerce business, in part due to complicated inventory management and other challenges associated with the industry. Ecommerce accounting involves many steps including organizing financial data, preparing financial reports, and analyzing data.

This article provides details on various aspects of ecommerce accounting and why these features are important.

Importance of accurate financial tracking

An e-commerce business not only needs to track sales, but also all expenses. Aside from the costs associated with sourcing the product, the expenses of an ecommerce store also include:

  • storage costs;
  • platform or hosting fees;
  • shipping costs, including packaging material;
  • bank charges;
  • item return;
  • insurance costs;
  • staff costs (if applicable);
  • utilities;
  • Steer.

It's important to accurately categorize these expenses so you know exactly where your money is going. When you consider everything, you can try to find ways to reduce your overhead costs. If you don't know your numbers, you don't need to analyze anything to find opportunities for improvement.

In terms of revenue tracking, you need to categorize your revenue streams, e.g. B. Revenue by product. This way you also know your markup for each product and can adjust all your prices accordingly.

These expenses and revenue streams need to be tracked both for tax purposes and to better understand your true profit margins. If your profit margin is tight after calculating all of your expenses, you may need to adjust your prices. You can use onelabeled formulato find the prices that give you a more industry-standard markup.

Learnhow to automatically categorize your expenses in QuickBooks Online.

Compliance with tax regulations

With e-commerce accounting, you can comply with tax laws and deduct all your expenses, allowing you to keep your tax bill to a minimum. It keeps your data organized, which simplifies your tax filing process, especially if you use accounting software.

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However, ecommerce businesses also have to deal with sales tax laws, which are complicated, especially for ecommerce. Proper bookkeeping helps you keep track of your sales and shows you when to collect sales tax. It also allows you to track the sales tax collected so you can pay it correctly when it is due. As we all know, breaking tax laws can be costly and result in large penalties, fees and interest.

Check out oursList of the best tax preparation softwareto find the right tool for your ecommerce business.

inventory management

Tracking your sales and expenses will help you determine how much inventory you need at any given time. Too much inventory means you're out of cash in your pocket, and too little inventory means orders won't be fulfilled or will be delayed.

Inventory accounting also involves tracking your sales by product so you know how much of each product needs to be in your inventory and make purchases accordingly.

You may also discover products that aren't selling well or aren't profitable. Demand for some products may even be outdated, so you know what to stop buying.

In other words, you will know which products make money and which don't. If you find that you have slow-moving or obsolete stock, consider offering it at discounted prices so you don't have dead stock and can recoup at least some of your costs.

Inventory accounting can also help you ensure that your actual inventory matches your records. If they don't match, you'll need to do some research to find out where the discrepancies are and if you have a theft problem.

As you can see, accounting and inventory management are an important part of cash flow management, which we'll discuss next.

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Discoverhow to create the best inventory management systemand check the listThe 7 Best Inventory Software Solutions for Small Business.


Cash is king in any business. You need to know how much cash you have on hand at any given time to meet your obligations, making cash flow forecasting an important part of your accounting process.

Cash flow forecasts are typically prepared on a 12-week plan, with your actual cash inflows and outflows being tracked on an ongoing basis. It can tell you where you might be short of cash, but also how you can improve your cash flow.

There are three main elements in cash flow management: inventory,requirements, jAccounts Payable.

Let us reiterate that it is important to keep your inventory at the optimal level so that you can fulfill orders without tying up too much money. Finding this level can only be done by correctly tracking all your sales by product.

When it comes to accounts receivable, you want to make sure you collect your receivables as quickly as possible. Receivables are cash that is not readily available, so you must set strict deadlines for receiving payments. They also have to go the extra mile to collect late payments.

Accounts Payable requires the opposite strategy. You want to keep as much cash on hand for as long as possible, so negotiate terms with your suppliers to give yourself a longer payment period. You may want to extend this time as long as possible without incurring penalties.

In general, proper bookkeeping will provide you with the information you need to create and analyze your cash flow forecast.

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financial statements

Bookkeeping allows you to create financial statements that give you a lot of valuable information about how your business is doing. Financial statements are also required when attempting to obtain financing from a lender or investor.

There are three main types of financial statements.

  • income statement: It is a record of your income and expenses during the reporting period and shows your net profit.
  • balance sheet: This statement shows your assets, liabilities and equity, which is your company's net worth, at all times.
  • Cash Flow Statement - Presents your cash inflows and outflows during the reporting period and your cash balance at the end.

You should run these reports at least once a year, but it's often good practice to run them quarterly or even monthly so you can analyze your statements and look for opportunities for improvement.

Discover how you can relievefinancial reports with synder.

Budgeting and Forecasting

Perhaps most importantly, ecommerce accounting helps you forecast and budget for your sales.

Accounting for your sales gives you historical data that you can use to predict your sales in the future. You should even be able to forecast your sales based on your historical sales performance per month. Your forecast not only tells you how much you should be making, but also what additional resources you may need to support the business at each sales level.

Your forecasting and accounting can help you create your budget based on historical data. You need to know what your expenses are at different sales levels in order to be able to predict your expenses based on your sales forecast. Your budget matters: without proper forecasting, you are unprepared for potential budget constraints.

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A budget helps you plan and strategize so you have enough resources to meet your commitments to fulfill orders and keep your business running.

As you can see, without thorough bookkeeping, you don't have the information you need to create accurate forecasts and budgets.

Read more aboutFinancial forecasts and their importance.


Accounting also includes the calculation of your key figures (KPI). An eCommerce business owner needs to track several KPIs including:

  • Conversion rate of your website: How many visitors complete a desired action;
  • Cart Abandonment Rate – How many visitors add items to the cart and abandon it before completing a purchase;
  • Your customer acquisition costs: how much you have to spend to acquire a customer;
  • Average order value: how much each customer spends;
  • Customer Lifetime Value – how much you will earn from each customer over the lifetime of your relationship with them;
  • Net Profit Margin by Product.

These metrics are all measures of your success. Accounting gives you these KPI numbers that show you where you're doing well and where you're not. You need to compare your KPIs to industry standard KPIs to see if you are below where you should be.

This allows you to take targeted action to improve your KPIs and therefore your overall performance. You also have the key data that will enable you to make informed decisions.

By analyzing your KPIs, you can also identify trends, e.g. B. Months with lower conversion rates. This could lead you to put more effort into driving sales during these months.

In general, KPIs help you focus on what matters most to your business. By identifying the key metrics to track, you can prioritize your efforts and ensure you're allocating resources effectively. Be sure to monitor your KPIs monthly. If you take the right steps, your KPIs should improve over time.

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Learn more about the benefits ofData analysis for e-commerce companies.

final thoughts

Accounting in an ecommerce store can be complicated and has nuances that accounting in other businesses don't have. If you don't have an accounting background and understand these nuances, your best bet is to purchase ecommerce-specific accounting software or outsource the services of an accountant with an ecommerce background.

In any case, don't overlook the importance of accounting for your ecommerce business. Getting it right is critical to your success!


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