| Aspect | E-Commerce Bookkeeping | Traditional Accounting |
|---|---|---|
| Sales Tax Collection | Multi-jurisdictional obligations based on customer locations | Usually less complex with sales tax based on a single location |
| Inventory Management | Often involves drop shipping or third-party fulfilment centres | Usually managed from a single warehouse or limited locations |
| Revenue Streams | May include digital products, subscriptions, and marketplace earnings (eBay or Amazon) | More localized and limited to physical products and services |
| Fraud and Risk Management | High risk of digital fraud requires strong online security and fraud detection systems | Lower exposure to digital fraud, but still needs basic security measures |
| Integration | Requires integration with e-commerce platforms and digital shopping carts | Less dependency on digital platform integrations |
| Payment Methods | Deals with multiple payment gateways (PayPal, Stripe, digital wallets, cryptocurrencies) | Involves fewer payment methods; mainly cash, checks, and credit cards |
Tips & Tricks for E-commerce Bookkeeping
Here are some starter tips when you’re bookkeeping for ecommerce sellers:
1. Understand the Tax Obligations for Ecom Sellers
In Toronto, Canada, e-commerce sellers have to register for GST (Goods and Services Tax) and HST (Harmonized Sales Tax) if their business makes more than $30,000 in any four consecutive calendar quarters. When your sales exceed this benchmark, you’ll have to register and collect sales taxes from your customers based on the province they are located in.
For example:
- If a customer is in Ontario, HST at 13% is applied.
- If a customer is in Alberta, only GST at 5% is applied (since Alberta does not have PST).
Besides GST and HST, e-commerce sellers might also need to register for PST in provinces that impose this tax (e.g., British Columbia, Saskatchewan, Manitoba & Quebec). As a rule of thumb, most digital stores need to collect 5% GST on their sales — apart from 13% to 15% HST, depending on the province. However, this tax rate does not apply to zero-rated supplies, such as basic groceries, female hygiene products, or prescription drugs etc. This article is recommended to understand all GST/HST/PST/QST applicable to businesses selling across Canada
2. Use Mobile Apps for On-The-Go Expense Tracking
The higher your operational expenses, the lower you pay in taxes since most (if not all) business-related expenses are tax deductible. Have a spare room that doubles up as a home office for your digital storefront? Deduct a percentage of your home expenses from your business’ tax payable. Brought an online workshop or printed magazine to learn inventory tracking for e-commerce? Write it off as a deduction in your tax liability.
Given the number of deductions allowed for e-commerce businesses, it’s imperative to maintain a detailed track record of all your expenses. Because if you don’t remember the advertising expense you paid back in January, you’ll have to pay tax on it! (as it adds to the net profit instead of the expense category).
This is where Mobile apps like QuickBooks & Dext come in, helping e-commerce sellers record and manage expenses as they occur, no matter where they are.
Here’s what the software offers:
- Integrates with multiple e-commerce platforms (Shopify and WooCommerce)
- Automatically tracks mileage, captures receipts, and categorizes expenses
- Simplifies tax filing by categorizing tax-related expenses
Furthermore, there are many other essential tools to boost your online success as an ecommerce business owner. These include Fathom for data-driven insights and A2X Accounting for sales automation.
3. Regularly Reconcile Your Bank Accounts
Without monthly bank account reconciliations, it can be difficult to maintain accurate financial records. Comparing recorded balances against the cash balances, reconciliation helps e-commerce sellers identify errors or discrepancies in their records, such as bank fees, transaction errors, or even fraudulent activities (which costed businesses $41 million in 2022).
Since e-commerce transactions often involve multiple payment gateways and currencies, they have a high potential for fraudulent activities. Monthly reconciliation helps you detect these anomalies and take steps to mitigate them, which aids in maintaining transparent financial records and overall stability.
4. Categorize Your E-commerce Transactions
When recording operational costs and everyday expenses, e-commerce sellers should aim to divide their transactions into categories. This makes it easier to match and reconcile your books with your bank statements at the time of reconciliation. Plus, when you record expenses category-wise (web hosting, marketing expenses, shipping), you have a better view of your store’s spending patterns, which helps identify excess spending segments.
5. Tax Considerations for International Sales
Most e-commerce stores deal in international sales and obtain most of their revenue by shipping their products worldwide. But how do you calculate your tax liability in this case? Well, goods and services sold to customers outside of Canada are usually considered “zero-rated” sales under the GST/HST regulations.
This means that while you need to report these sales to the Canada Revenue Agency (CRA), you don’t need to collect GST/HST from international customers. However, be aware that these sales may be taxable in the countries where your customers reside. For example, goods sold and delivered to the USA, or the EU may not be taxable in Canada, but you might be required to register, collect, and remit state sales tax in the USA or VAT in Europe.
The bottom line: While Canadian e-commerce sellers do not collect taxes on international sales, the customers receiving these goods may be subject to customs duties, import taxes, sales taxes and VAT as per their country’s regulations, especially if you are not registered in those regions. This can lead to an unpleasant experience for your customers, potentially resulting in a decline in sales.
6. Streamline Data Entry with E-commerce Platform Integrations
Manual data entry is prone to errors. A study by IBM estimates that bad data costs the U.S. economy around $3.1 trillion a year, highlighting the impact of inaccurate financials. Automation helps cut down these errors by directly transferring data from e-commerce platforms to a bookkeeping tool, resulting in accurate financial records.
Plus, automation also reduces the risk of costly errors as the business scales, managing an increased load of transactions. For those seeking smooth, reliable accounting software, QuickBooks is a go-to. A2X Accounting Integrating with multiple e-commerce platforms like Shopify and Amazon, the platform automatically updates order details and inventory — which helps synchronize sales data and reduces manual bookkeeping efforts.
7. Outsource as the Business Scales
As e-commerce businesses grow, they experience an increase in transaction volume — sales, purchases, returns, shipping costs, and more. This is where outsourcing to professional bookkeepers and accountants, like Transcounts, steps in to save the day. Letting e-commerce sellers pay for services only when needed, outsourcing the bookkeeping aspect proves far more cost-effective than hiring an in-house team.
Since these experts are up-to-date with tax laws and accounting standards, they help you maintain reliable financials that guide informed decisions for your digital storefront. So, by outsourcing non-core functions like bookkeeping, sellers can focus on what they do best, improving their operations. As a result, outsourcing bookkeeping services Vancouver can save you money in the long run.
Benefits of Effective E-commerce Bookkeeping
Here are some benefits you can expect when properly maintaining the books of your ecommerce business:
1. Simplified Tax Filing & Reduced Risk of Audit
By maintaining up-to-date records and financial statements, e-commerce bookkeeping simplifies the tax filing process since all transactions (sales, returns, or discounts) are documented in advance. Staying on top of your books means categorizing expenses as they occur, which makes it easier to spot deductions come tax time. This consistency reduces the chance of errors in financial records — and helps steer clear of costly CRA audits.
2. Fraud Prevention and Detection
Bookkeeping for ecommerce sellers maintains a record of all transactions in your digital ledgers, no matter how big or small. This detailed logging creates a transparent audit trail that can be followed to verify the legitimacy of every transaction. Plus, regular reconciliation (a part of bookkeeping) helps e-commerce brands spot discrepancies in their financials, such as unauthorized purchases, sudden changes in vendor credentials, or duplicate transactions.
3. Better Understanding of Cash Flow and Liquidity
Financial reports provide a clear view of a company’s financial status, including its liquidity position. This helps e-commerce owners make prompt, data-backed decisions, whether it’s addressing a cash flow crunch or adding a top-selling product to the inventory. Through historical data and financial analysis, bookkeeping helps businesses make accurate forecasts of future cash flows — allowing them to maintain enough liquidity during off-season months.
4. Financial Transparency for Potential Investors
When financials are well-maintained and available, it gives potential investors the opinion that the business is committed to transparency and accuracy. These records help investors assess the worth of the business and decide how much they should invest, which prevents overvaluation or undervaluation. Book keeping services Toronto also gives proof of the business’s compliance with legal standards, reassuring investors that it is less likely to get tied up in lawsuits.
Final Thoughts
Bookkeeping and accounting services are a must for any e-commerce storefront, helping them maintain their financial health and cash on guided, data-backed decisions. Reflecting a company’s liquidity and cash flow situation, well-maintained books also help win investor confidence, securing long-term loans and lines of credit.
However, given how competitive the e-commerce industry is, handling complicated operations like bookkeeping can quickly divert your attention from core business aspects. This is where Transcounts come in. Specializing in small business bookkeeping services Vancouver, our team is skilled in managing everything from employee payrolls to contractor payment processing. So, outsource the bookkeeping aspect to us and take your e-commerce store to new heights!
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