We'll go through how to prevent some of the most common accounting problems we encounter in e-commerce enterprises in today's article.
There are a few accounting blunders to avoid whether maintaining the books for your an e-commerce business or for a client's e-commerce business. It's easy to get caught up in a million and one various chores, especially with the e-commerce business flourishing, and eventually forget about keeping your books of accounts updated.
Unfortunately, accounting is one of those fields that cannot be avoided. On the plus side, by being aware of some common mistakes, you can avoid getting swamped with work later on.
Here are 7 top accounting and finance mistakes being made by the E-commerce companies
Manual accounting is overly complicated and time-consuming in 2022. There are high chances of human error is maintaining accounts manually, which means your financial reports may not accurately depict your company's status. There are several methods for digitizing and automating the accounting operations in your e-commerce business.
At the heart of these is the installation of appropriate cloud-based accounting software. By moving to the cloud, you will be able to view your data from anywhere and easily grant access to others. You can then configure bank feeds to automatically import transactions from your bank. You can also digitally store all of your receipts and other paperwork.
After you've configured your accounting software, you can integrate it with your e-commerce platform. This eliminates the need for manual data entry and bank reconciliation. For example, you may automate your accounting procedures by connecting Shopify to MYOB, Xero, or QuickBooks Online for free.
Identify software that can can set up an automated daily sync that consolidates your sales and payments data into a single invoice. As a result, rather from requiring a few hours each week, bank reconciliation becomes lightning fast. Transactions are mapped into the appropriate category and can be further classified, resulting in improved financial insights.
Ensure that sales and payment data are mapped into the relevant category in your e-commerce business's chart of accounts as part of setting up your accounting software. Assets, liabilities, equity, revenue, and expenses are the standard categories, and each is subdivided into applicable sub-categories such as advertising, storage fees, or sales.
We find a few major sales and payment categories that e-commerce enterprises frequently map to the incorrect account. Credit and gift cards, for example, should be classified as a current liability rather than revenue.
If you're using an accounting integration, it's critical that account types are properly matched from the start. Our team can assist you to choose between preset mapping that works for most e-commerce enterprises and custom mapping if you have specific requirements. If you are unclear, please contact our integrations support team or an accounting professional.
Similarly, tax types can be extremely complicated, especially as most e-commerce companies deal with many locations, each with its own tax system. To a large extent, you can rely on your e-commerce platform, accounting software, and other integrated apps to effectively manage all of the many sorts of tax.
You should, however, ensure that you meet all of your region's tax requirements. Check that you're correctly processing tax kinds like value-added tax (VAT), tariffs, and shipping duties. Check what activities you need to file and keep all of your paperwork organized.
Next, inventory management is a major source of frustration for e-commerce enterprises. The more your company expands, the more difficult it appears to be to maintain precise inventory levels. It is critical to address this issue early on. There are a variety of inventory management apps and solutions available to assist you with simplifying.
Another thing to consider is how your inventory management software works with your accounting software. For example, if you're buying things from a third-party manufacturer or supplier, you'd want data in your accounting software to update immediately when you place a purchase order and when your inventory arrives.
The value of your inventory is critical in defining your balance sheet, profit and loss statement, and cash flow forecasts. If a mistake is made early on, it will most likely persist and eventually impair your or your accountant's capacity to create company insights. Accurate inventory levels help you comprehend your financial situation.
Last but not least, we frequently find business owners in all industries avoiding bookkeeping until it is too late. Although it is not unique to e-commerce, it is so frequent that we had to include it. Spending even half an hour each month on accounting operations will save you a huge headache at the end of the fiscal year.
Keeping your records in order on a regular basis is especially crucial for business owners, whether you conduct your own accounting or deal with an accounting expert. It's a good idea to set up some time on a regular basis to go over your accounting.
Create a monthly checklist of accounting tasks, for example. Uploading receipts and paperwork to accounting software, verifying inventory levels, and reconciling bank accounts are some examples. If you use one of our accounting connections, bank reconciliation could take only a few minutes.
While you're keeping track of cash flow and other financial data in your books, make sure your bank account reflects the same balance. If there is a difference between the two, there is most likely an error that needs to be corrected right away to prevent the problem from worsening. Regularly comparing your business bank accounts to your books can also help you detect any fraudulent transactions.
It's easy to overlook that small thank-you gift you mailed to a client or the ream of printer paper you bought on your way back to the office. No matter how minor the transaction, it is critical to record it and obtain a receipt. In the event of a tax audit, you must be able to provide the IRS with records of all your business expenses, including minor ones.
By laying down the groundwork and setting up a few easy processes, you can significantly reduce your chances of making an e-commerce accounting mistake. In particular, you want to focus on minimizing human error, ensure data is recorded accurately, stay on top of ongoing tasks, and make the most of the tools available!
At Jordensky, we are committed to providing an experience of the highest caliber while specializing in accounting, taxes, MIS, and CFO services for startups and expanding businesses.
When you work with Jordensky, you get a team of finance experts who take the finance work off your plate– ”so you can focus on your business.