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Accounting in the United States, especially e-commerce accounting, is the practice of recording, organizing, and managing all financial data and transactions relevant to the operation of an e-commerce business. Think of it as a subset of business accounting specifically configured to handle the unique needs of an e-commerce provider.
In its most fundamental form, accounting is the practice of tracking and recording transactions and categorizing each one as income or expense. Pretty simple, right?
Still, it can be easy to get lost in accounting terminology, especially if you're new to the field. To keep things simple, here are some of the key components of ecommerce accounting:
Purchase Order: A purchase order is a legally binding document from a customer that indicates the quantity and type of items they wish to purchase, with a commitment to pay a set price for those items. Although a purchase order is not a payment, it must include payment details. Your company can use a purchase order to order raw materials from a supplier, or a customer can send one to you requesting a specific volume of goods or services.
Sales Order: A sales order is a document prepared by the seller (usually in response to a purchase order) that describes all the details of a sale. A sales order must include customer information, description and quantity of goods sold, sale amount, payment information, and delivery address and date.
Accounts payable and accounts receivable: These terms refer to open accounts and invoices, or the total amount of expenses not yet paid and income not yet received.
Cost of Goods Sold (COGS): This is the total cost of producing and distributing a product. It is often calculated to include shipping, storage, credit card fees, and any other costs directly related to selling products. Does not include overheads such as payroll, marketing, software licenses or office space.
Ecommerce Sales Tax: This refers to the tax paid by the e-commerce business to the state where the buyer resides, provided there is a sales tax nexus between the seller and the state - meaning that the state has the right to tax an company, which it usually does if the company carries out any economic activity in the state.
Reliable and accurate accounting practices are essential for any business owner. On the one hand, accounting activities allow you to manage and forecast cash flows so that you can plan ahead to maximize your potential profits and growth. E-commerce accounting can also help you manage your tax obligations. E-commerce businesses are subject to a specific (and often complex) set of tax guidelines, and no one wants to be hit with a tax bill or end up owing penalties to the IRS.
As your business grows, your balance sheet will inevitably become more complicated. Without a plan, what may seem simple can become a nightmare of miscategorized transactions, lost funds, and accounts that won't reconcile. Our team can help you with bookkeeping, licenses, sales tax and your company's income tax.