Accounting is a vital role of running an e-commerce business. As your store grows, it will become increasingly important to manage accurate books. Read on to learn more about how e-commerce differs between traditional and online businesses, easy e-commerce mistakes to avoid, building your accounting stack, and more.

How E-Commerce Accounting Differs from Traditional Retail Accounting

To start, an e-commerce business may have multiple sales, distribution, and marketing channels. A merchant also has many alternative business models to choose from, such as dropshipping and Print-On-Demand. Additionally, e-commerce transactions are found in the back-end databases of a merchant's sales channels, not in their bank accounts and credits card like for retail stores. The income and transactional dates found in the latter location are inaccurate.

One of the major benefits of e-commerce is that it grants merchants access to a larger and more international market; however, this perk comes with challenges attached. Staying on top of sales tax rules is a uniquely difficult task for e-commerce merchants. A business' sales tax depends on various elements: what its products are, where its products are sold, where its inventory is stored, and more. However, since an e-commerce business is often less physical and fixed than a retail store, these determiners less straightforward. Furthermore, many e-commerce businesses deal with more foreign transaction costs than a traditional store, which brings international sales taxes into the picture and complicates the accounting process. Additionally, fulfillment becomes more complex with customers in different countries.

Inventory management is one of the most important parts of maintaining an e-commerce business. Being unable to efficiently manage one's inventory information may result in extra fees and cashflow challenges. However, a merchant has to keep track of all the products in production, in transit, in shopping carts, at warehouses, being delivered, and being returned. The remote and digital nature of some of these stages makes gathering accurate data challenging. The situation becomes even more complicated as an e-commerce business expands its products list and becomes more international.

Lastly, an e-commerce store can have a larger number of small ticket sales, which may result in high volumes of financial data. The amount of data can make accounting difficult and could even overwhelm a merchant's accounting system — as a result, organization and regular management are extremely important. However, despite the unique challenges of e-commerce accounting, the differences between e-commerce from traditional retailing are what make it exciting.

Common E-Commerce Accounting Mistakes

1. Not backing up data regularly
2. Not tracking overhead expenses
3. Not quantifying discounts and customer returns into costs
4. Not accounting for platform and service provider fees
5. Incorrect Cost of Goods Sold (COGS) calculations
6. Inventory Mistakes
7. Looking at the profit, but not the cashflow
8. Not understanding the difference between cash accounting and accrual accounting
9. Mixing business accounts with personal accounts

Check out our article 16+ Common Mistakes in E-commerce Accounting  for a more detailed breakdown of the problems listed above.

E-Commerce Accounting Software Stack

An e-commerce accounting software stack consists of the software, and any add-ons, a merchant utilizes to handle the accounting and financial aspects of their e-commerce store.

The common components include an accounting system, an inventory management system, a documentation storage system, and integration tools to connect this setup.
Outsourcing, upgrading, and migrating of an accounting stack may occur, as a business will not start out with an advanced system set up.
As long as the structure and organization of a merchant's accounting software stack are sound and dependable, they can continue to use off-the-shelf software to do the job.

E-Commerce Accountants & Specialists

Accountants for an e-commerce business must understand the differences between e-commerce and traditional retailing. They should be familiar with international sales tax rules, cloud-based software, and complex inventory tracking. An e-commerce accountant should also be able to adapt to the rapid growth of a store, whether that is in terms of sales, inventory, channels, advertising platforms, etc.

Furthermore, every business' accounting needs are slightly different. An e-commerce accountant should have a business' goals in mind when working. They should also thoroughly understand the business' workflows across different platforms, systems, and software — so as to be able to create an accurate, seamless accounting process based on these workflows.

An e-commerce business may also pay for other specialists, besides accountants:

- Web & application developers: Their main role is to create websites or apps for e-commerce businesses. Additionally, web & application developers have the responsibility of testing, maintaining, updating, and troubleshooting the finished website or application. Some are also paid to customize and integrate e-commerce tools and platforms for businesses.

- Graphic & animation developers: They help e-commerce businesses create visual concepts, animation, and designs that attract and inform consumers. Their job normally includes working on the visual aspect of a store's website, including the formatting, text, color scheme, and use of icons & animations.

- Marketing specialists: As the name suggests, marketing specialists focus on the marketing aspect of an e-commerce business. Their central roles are understanding the current industry & consumer trends, running marketing campaigns on or across different platforms, and optimizing a business' website & social media presence to better attract consumers. A marketing specialist is very familiar with the various marketing strategies and online tools to their use.

Integrating Accounting Solutions with Your Store

Keeping track of your books is one of the most important parts of running an online business, and having a good accounting software can change the game. While manual spreadsheets get the job done, they don't scale well as your business grows. Before we dive into different reliable options, let's explain how Shopify and WooCommerce integrate with accounting differently.

Shopify is an all-in-one solution that is easy for beginners, and anyone looking for a platform. Getting started is easy, and you can have a running store in under an hour. There is no coding required, and built-in multichannel integration is offered.
WooCommerce is a free Wordpress plugin that allows you to turn your blog into a business. It is self-hosted, meaning you have full customization over all aspects of your store design and code. The platform is also free to install, adding a fantastic value proposition.

A key difference between the two is the type of synchronization necessary. All Shopify add-ons are integrations, while WooCommerce utilizes plugins. An Integration is a connection that is not a part of the website's interface. They are built by third parties, using open API. As an integration is a completely separate entity from the store, you must manually synchronize and transfer store data. Plugins on the other hand are built into the solution's software. This means you only have to "activate" the plugin to begin using it.

Accounting Integrations with Shopify

To view basic financial information about your business, visit the finance section of the reports page. This will provide you with a live summary of all e-commerce activity. You can view gross sales, returns, payments, and other essential information. All business reports generated by Shopify can be exported, however the raw data isn't always available.

If you want in-depth reporting and analytics, you may want to consider a Shopify accounting integration. Most can:

- Allow for cross-platform integrations: Connect various integrations, and work across different platforms.

- Reliable calculations: The accounting tool you choose should be able to accurately calculate tax, help you pay any invoices and show business statistics, such as COGS.

- Data visualization: While each integration approaches data reporting differently, each should provide a detailed and clear overview of your business.

Recommended Accounting Tools for Your Store

While there are thousands of accounting tools, here are some popular options.

Shypyard is a customizable cloud-based accounting solution for businesses of all sizes. The tool has four main workflows: sales, stock, products, and payouts. In addition, the Shypyard dashboard contains an error log that allows for easy troubleshooting, and cross-platform integrations.

FreshBooks is a cloud-based accounting and invoicing software for micro and small business owners. They began as a web-based invoicing software, and have evolved into an accounting and management software. With FreshBooks you can create invoices, estimates and proposals, collaborate with team members, create customer portals, and manage business transactions. For more information on FreshBooks, consider reading this blog post.

Founded in 1996, Zohobooks has established its roots in e-commerce. The Zohobooks accounting solution funnels all data into a central location, allows you to create triggers to reduce manual processes, and automatically transfers all data from your Shopify store to dashboard. For a detailed guide to accounting with Zohobooks, read this blog post!

Australia and New Zealand-based accounting software, MYOB, has become increasingly common among businesses of all sizes. The cloud-based service aims to be your central business hub, with the ability to link documents to business transactions, and multiple workstreams for different employees. However, MYOB lacks customizability for data-centred companies. The Shypyard and MYOB connector can be a gamechanger! Learn more about how to sync data and automate accounting with Shypyard, and start a free trial today.

With over two million users worldwide, Xero is one of the most popular accounting solutions for small to mid-sized businesses. Xero is a malleable system, with over 65 report templates, a customizable main dashboard, and an equity report. However, there are some holes in the Xero system. Integrating can be tricky, and troubleshooting is often hard. If you want to harness the power of Xero, we consider using Shypyard' Xero integration! Shypyard fills all the gaps in Xero's system, creating a powerful and trustworthy hub for all your business needs.

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