Process involved in E-commerce Accounting

Process involved in E-commerce Accounting

The whole world embraced e-commerce during the Covid-19 pandemic—even those who were reluctant about it earlier. 

Virtual markets are now more than ever gaining preference over physical ones. This growth is an indicator for businesses to use the e-Commerce model. 

We are living in the times of a digital revolution. In such times, enterprises must have an online presence. Even global brands come up with online portals to increase sales. 

This article will focus on the most important aspect of any e-commerce business: accounting. 

You will find out about the process of e-commerce accounting. You will learn the benefits of exclusive tips to optimise the process. 

What is Accounting?

Accounting is the systematic recording of all financial transactions made by the business. The process of accounting relates to being accountable for your money. 

By using accounting, a business can understand and analyse its financial performance. Accounting practices will help you build a reliable business. 

Accounting is the art of ensuring smooth money flow in the business. E-commerce accounting is the procedure for collecting, organising and analysing financial data. 

Then this data is converted into reports called financial statements. These can include balance sheets, income statements and cash-flow statements. 

You must take business decisions based on these statements. These reports also help in tax calculations. 

E-commerce businesses can do loads of transactions every day. So, it isn't easy to manage accurate accounting. But fret not; the process consists of some simple steps. 

So, let us break down the process of e-commerce accounting.

E-commerce accounting consists of 3 main stages:

  1. Bookkeeping
  2. Generating reports and statements
  3. Doing tax calculations and submitting taxes

Let us have a look at these stages one by one.

  1. Bookkeeping: This stage is the most important one in this process. It is also the first stage of the accounting cycle. 

A financial transaction happens whenever money enters or leaves the business’s bank account. Based on the source and destination, e-commerce transactions can be of the following type:

  • B2B (Business to Business) E.g.: IndiaMart
  • B2C (Business to Consumer), E.g., Amazon, Myntra, Flipkart, AJIO, etc. 
  • C2C (Consumer to Consumer) E.g.: OLX, eBay
  • C2B (Consumer to Business), E.g., Fiverr, Upwork, etc. 
  • D2C (Direct to Consumer), E.g., Healthkart, Bombay Shaving Company, Mamaearth, etc. 

The following is a list of transactions that you must record:

  • Revenue: This is the money collected from the sale of goods.
  • Expense: Money used for running the business. This also includes the charges for sustaining the supply chain. 
  • Assets: What the business owns is an asset. 
  • Liabilities: Any debts or loans that the business is under. 
  • Equity: This is the money that the owner invests into the business. 
  • Return and Cancellations: These include the money returned to the customer. 

It is important to categorise a transaction into one of these types. Now a business can record these entries with ease using accounting software. 

  1. Generating reports and statements: The data in the financial books provide accurate financial statements. All these statements form the backbone of the process of e-commerce accounting

These statements are of 3 main types:

  • Income Statements: This type of report tracks the income generated by the business. It is also known as a statement of revenue. It covers the business's revenue, profits, losses, and gains. These are of immense importance to small businesses. Banks require this to review the financial output of the business. 
  • Balance Sheets: These provide owners with the bigger picture. These provide details about your business at a particular moment. It contains details about the business's liabilities, assets, and equity. Hence, it is also known as a Statement of financial position. 
  • Cash-flow Statements: It has records of transactions made in a given period. There is a difference between this and the other two statements. Cash-flow statements can tell you how much money your business has at hand. 
  • Doing tax calculations and submitting taxes: Tax accounting is an important aspect of the whole process. You can calculate taxes to pay based on bookkeeping and finance statements. It also helps to optimise after-tax profits and get as much rebate as possible. Use these two with wisdom to never miss a tax payment deadline. It also improves the financial flexibility of the business. 

Tips to optimise e-commerce accounting

  1. Outsource accounting to reduce the costs attached to the process. This way, you can save costs of accounting software and personnel. 
  2. If you want to do accounting in-house, invest in high-quality accounting software. 
  3. Prepare and use experts to analyse financial statements. At Especia, we offer virtual accounting services with our team of professional accountants.  
  4. Streamline your e-commerce platform with accounting software. 
  5. Use inventory management techniques to ensure the efficiency of the supply chain.

Benefits of e-commerce accounting

Here are some of the benefits of e-commerce accounting for your business.

  1. It ensures the stability of your business’s financial base. Using sound accounting practices, you can keep track of all your income and expenses. It also shows where you earn the most and spend the most. In a nutshell, it shows how the business is doing at any given time. 
  2. It helps you forecast your business. This is because numbers never lie. These can help to make strategies to improve performance. Using e-commerce accounting, you can generate financial statements. Using these reports, you can make projections about how the business will be in the future. 
  3. Making purchase orders and raising requisitions requires an accurate inventory. Thus, accounting is an important aspect of inventory management. Both must work hand-in-hand to ensure the supply chain remains intact. 
  4. It is a must-do for tax calculations and accounting. E-commerce accounting can calculate the due taxes before the tax due date arrives. It also helps you analyse and plan advance tax payments like Tax Deducted at Source (TDS), etc. 
  5. For small businesses, efficient accounting can help in securing loans. Lenders require cash-flow statements and projections to approve a loan. 
  6. It can help you court investors. The financial statements are the first thing any probable investor looks at. They make a professional accountant vet these to plan an investment in your business. 

Conclusion 

Here is a gist of the process of e-commerce accounting:

  • Arrange income and expenses
  • Account for customer returns and cancellations
  • Find out the break-even point. This is the point where the revenue equals all the costs. 
  • Make financial statements and analyse them. 
  • Do tax calculations.

As mentioned above, there are several benefits of e-commerce accounting. Outsourcing accounting is beneficial if you are running a small e-commerce business. This way, you can save both a lot of time and money. 

Especia is one the leading Indian firms that provide virtual accounting services. Our team of highly trained accountants offer excellent financial insight into the accounting of your business. 

The cost of our services depends on your demands. To get a quote or for any queries and assistance, call us at +919310165114 or drop an email at accounts@especia.co.in

Frequently Asked Questions

1. What are the 3 main stages of e-commerce accounting?

  • Bookkeeping: Identification and collection of data
  • Recording and analysis of Data using financial statements
  • Using the data to make business decisions and do tax calculations.

2. What are some of the best online accounting software?

  • SAP
  • Quickbooks
  • Xero
  • Zoho
  • Tally

3. Is my financial data safe with virtual accounting service providers?

  • We at Especia have top-notch CCTV surveillance and other digital security tools to ensure your financial data is safe and secure. 

4. What are the benefits of outsourcing accounting services?

  • Cost efficient
    • Trained professionals provide services and customer support
  • All legalities handled

Contact Us for CA Services Online,  Bookkeeping Services Outsource Accounting ServicesVirtual Accounting ServicesAccounting Service For Startups , ESOP Services , GST Services  in Delhi, Noida, Gurgaon, and all across India: write to us at accounts@especia.co.in. Or Call On :(+91)-9711021268 +91-9310165114

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