How is E-Commerce Accounting Different from Regular Accounting?
From requiring specialized digital accounting tools to having to keep up with different transactions, here are eight answers to the question, “What are ways e-commerce accounting differs from regular accounting?”
- The Difference Is in the Technology Available
- Vulnerable to Chargebacks and Fraud
- Tracking Sales Tax
- Deposits From E-commerce Platforms Are Not Purely Income
- Differing Rules for Internet Transactions
- E-Commerce Accounting is Complex
- Requires an In-Depth Understanding of the Technology
- High-Volume of Transactions
The Difference Is in the Technology Available
E-commerce accounting differs from regular accounting by using automated and cloud-based technologies. Automated accounting software can help streamline e-commerce businesses’ ordering, payment, shipping, and returns processes.
Cloud-based accounting solutions also offer efficient data storage and access options to ensure accurate record-keeping without manually managing physical records. Different trends in e-commerce require specialized accounting tools to keep up with the changing landscape of digital businesses.
Vulnerable to Chargebacks and Fraud
Accounting for e-commerce establishments requires greater vigilance because of the additional fraud and chargebacks e-com merchants must manage.
E-commerce organizations must maintain more intricate records of sales, returns, and credits, as proper bookkeeping is essential in keeping accounts from falling out of compliance with bank regulations and other online payment gateways. E-commerce companies must also account for fraudsters attempting to take advantage of credit card weaknesses that may occur through online purchasing, adding a layer of complexity when calculating financials that aren’t required by traditional businesses.
Tracking Sales Tax
For e-commerce companies, tracking sales taxes is an unfamiliar task than it is for their brick-and-mortar competitors. You’ll need to assemble this information in order to file taxes correctly in the spring, as each state has different sales tax regulations. Keep your sales tax information organized at all times to avoid the dangers and fines that invariably result from inaccurate data.
Understanding the economic nexus legislation implemented to control the collection of sales tax as more businesses expand into e-commerce is part of a sound accounting process. Because these regulations are dynamic, sellers and the accounting specialists they have chosen should work closely together to track changes and take action. A secret weapon of a successful seller? Users can use e-commerce accounting automation software to update QuickBooks Online, QuickBooks Pro/Premier, and QuickBooks Enterprise directly with transaction details (including sales tax information).
Deposits From E-Commerce Platforms Are Not Purely Income
In traditional accounting, it is safe to classify money received from sales as income. In e-commerce accounting, not that black and white.
Deposits from platforms like Amazon and eBay can’t be accurately classified as income in e-commerce accounting because they are, in most cases, net deposits, with seller fees and sales tax factored in.
This means the e-commerce accountant would have to go further into the backend of each sales channel to decipher these details accurately.
Also, in e-commerce accounting, these net deposits are aggregated over a period. This contradicts traditional accounting, which categorizes deposits daily.
Differing Rules for Internet Transactions
E-commerce accounting differs from regular accounting in that it must keep track of the inflow and outflow of transactions made over the internet. While traditional businesses may only have one point of sale, e-commerce stores often need to keep track of multiple payment methods, sources, and currencies.
E-commerce accounting must know the different rules and regulations surrounding certain digital payments that are unique to internet transactions. Third-party integrations may also be involved, such as fulfillment or drop-shipping services, which require extra consideration. Having a strong understanding of how these online sales work is essential for any business operating with an online presence.
E-Commerce Accounting is More Complex
E-commerce accounting involves a greater number of transactions and is more complex. One thing is that if you are selling through multiple platforms, you must keep track of all the transactions separately from customers across multiple platforms, such as Shopify, Amazon, eBay, Etsy, and more. This can be an overwhelming task and requires a keen eye for detail when managing accounts altogether, especially for tax filing.
E-Commerce accounting involves tracking expenses associated with the sale of goods or services online, such as credit card fees, shipping costs, and advertising expenses. This type of accounting requires a higher level of detail in order to track the sales and expenses associated with each transaction accurately. Regular accounting may not involve tracking these details and thus can be less complex.
Requires In-Depth Understanding of the Technology
One of the key differences is that e-commerce accounting requires a more in-depth understanding of the technology behind the transactions being conducted.
This means that the accountant must be familiar with the different systems and processes used to facilitate online shopping, such as payment processing, shipping, and customer service.
Since e-commerce transactions are often conducted across multiple platforms, the accountant must also understand how to track and record sales, expenses, and other financial transactions across multiple platforms accurately.
High-Volume of Transactions
Few other businesses come close to the number of transactions that even an average-sized e-commerce business clocks each day. Consider this from a financial perspective, and you know that accounting is bound to be a hassle.
Gathering the financial data related to each transaction is an arduous task. Segregating the different transactions in line with variations in taxation and accounting rules that apply to various products and services makes things even more difficult. Whatever the size of the e-commerce business, the list of complicated yet critical accounting maneuvers is usually long.
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