Ecommerce Bookkeeping Services: How-To Guide + 6 Differences from Traditional Bookkeeping

Ecommerce Bookkeeping Services: How-To Guide + 6 Differences from Traditional Bookkeeping

As an ecommerce owner, whether you’re selling on Shopify or on Amazon, it’s important to really understand the nuances and complexities of your ecommerce bookkeeping — what makes it different from any other bookkeeping process? The short answer is … a lot.

Understanding the differences and how to account for them will help you get the most value and insights from your financials and prevent major issues down the line. More importantly, it will give you the tools to review the quality and relevance of your current books to make sure you aren’t paying a lot for bookkeeping that is essentially irrelevant for your business. Let’s dive in.

What is ecommerce bookkeeping?

Ecommerce bookkeeping is the practice of recording, tracking, and managing financial data in order to fuel your ecommerce accounting accurately. 86% of ecommerce owners polled by Finaloop list the lack of ecommerce-specific accounting knowledge as one of the main reasons they are looking to replace their current bookkeeping service. This begs us to ask the question, “Is ecommerce bookkeeping really that different?”

The basic structure of all bookkeeping is generally the same. You’ve got your assets, liabilities, equity, income, and expenses. But, the breakdown of each category, the specific issues important for you to understand for your business, and the technology needed to properly record all transaction details are dramatically different from your brick & mortar or service business counterparts.

Many DTC owners and bookkeepers alike take the standard Quickbooks or Xero bookkeeping process, add an Intuit ecommerce service or third-party integration with their online store, point-of-sale systems, fulfillment, and other ecommerce platforms … then, consider this ecommerce bookkeeping. Adding ecommerce integrations is only one piece of the puzzle in making your books ecommerce-friendly. There are many real differences between regular bookkeeping and ecommerce bookkeeping that also need to be taken into account (yup, pun intended).

What mistakes do bookkeeping services and accounting software make?

Here we’ll share the top 6 bookkeeping differences between ecommerce businesses and physical stores that should be considered by you or any bookkeeping service you choose so you can maintain your books accurately.

These are the 6 most common mistakes we see done by non-ecommerce bookkeepers.

1. No big picture view of your real income
2. Gross margin is calculated differently
3. Inventory management is multi-faceted
4. Ecommerce financing has different rules
5. Sales tax is exponentially more complicated
6. Chart of accounts is not ‘one size fits all’

1. No big picture view of your real income

For non-ecommerce businesses, you see a deposit in your bank of $220, you record income of $220. It’s not rocket science. For ecommerce, it’s not quite so simple. A deposit of $220 from Shopify, Amazon, or Walmart, is not $220 of income. It could mean, $300 of income, $60 of returns, and $20 of merchant fees. It could also mean that of the $220, $15 is actually sales tax you owe to the tax authorities. In other words, just like your relationship status, it’s complicated.
Using technology such as AI accounting and AI bookkeeping to integrate with your online stores (like Shopify), marketplaces (like Amazon), payment processors (like Paypal, Afterpay, or Stripe), or your other apps, can significantly reduce your errors, give you a full big picture view into your revenue, and save you time on bookkeeping.

2. Gross margin is calculated differently

Everyone will agree that for a retail business, online or not, understanding your gross profit is a key metric in measuring the health of your business, determining your breakeven point, and forecasting your future profit. But, not everyone knows that the components of this calculation are different for ecommerce businesses. Gross margin is meant to be a calculation of the profit you are left with after a sale. For brick & mortar businesses, the gross margin is essentially revenue minus cost of goods sold, better known as COGS. For ecommerce stores, variable costs directly associated with making a sale should also be taken into account — specifically, merchant fees and costs for shipping to customers — because without these costs, the sale wouldn’t be able to happen.

3. Inventory management is multifaceted

Let’s say you own a shoe store and have 50 pairs of shoes in your backroom. If you sell 10 pairs, you know you have 40 left to sell. It’s easy to plan when to order more.
If, instead, you sell shoes online through multiple sales channels, such as your Shopify store and on Amazon, it becomes increasingly more difficult to track how many shoes you have left in stock and when it’s time to order more. Correctly accounting for your inventory costs and balances is something any good ecommerce accountant must understand. Based on our findings, it’s one of the major pains of all ecommerce brands and an area that tends to be very prone to human error when using a traditional bookkeeper to track inventory and COGS.

4. Ecommerce financing has different rules

There are many ecommerce financing options out there … Shopify Capital, Stripe Capital, ClearCo, Ondeck, Ampla, Wayflyer, and the list goes on. The way these financing instruments work are different than standard loans and can often impact the accounting and tax treatment. The same is true for credit cards (particularly those with generous net-payment terms for accounts payable). For example, a merchant cash advance received from Shopify Capital should be treated differently than a traditional loan. It’s important to find a bookkeeping solution that understands these nuances or you will likely lose out on potential tax deductions.

5. Sales tax is exponentially more complicated

One of the most complex issues ecommerce sellers need to deal with is sales tax. Sales tax can arise from physical presence in a state - an office, warehouse, employees, or from ’economic nexus’ - selling a certain amount in a specific state. For ecommerce businesses selling all over the U.S., sales tax can be a real headache. Make sure your bookkeeper or accountant understands the complexities of sales tax nexus and how to manage the compliance requirements. We recommend using an automated service like Taxjar to help you with the compliance requirements and make sure your sales tax is set up correctly in Shopify to ensure you are collecting required amounts from customers.

6. Chart of accounts is not ‘one size fits all’

A chart of accounts (CoA) is essentially the breakdown and structure of your financials. It shapes how you view and think about your finances. A well-defined CoA improves your ability to monitor and analyze the financial performance of your business through meaningful reports and can directly impact your decision-making process. As ecommerce accountants, we strongly believe that best practice CoAs vary significantly across different industries. The CoA for a doctor’s office, for example, should look different from the CoA for a CPG & DTC brands.

How to best manage your ecommerce bookkeeping service

If you have read until here, you should have a pretty clear understanding of why using an ecommerce bookkeeping specialist is important in maintaining accuracy of your books. Many people attempt to accomplish this themselves by using a DIY accounting software such as Quickbooks Online or using a traditional bookkeeper. Unless you have significant experience, a lot of the important nuances of ecommerce bookkeeping may be lost in your books. It’s important to make sure any bookkeeping solution you choose, has the ecommerce knowledge you need to get the most from your financials. To simplify the process and save you time and money on bookkeeping, you can use an automated bookkeeping service like Finaloop which covers your accounting software, app integrations, and full-service bookkeeping so you can get the most accurate ecommerce books with only about 15 minutes of input a month.

About Finaloop

We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.

The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.‍‍