When it comes to e-commerce businesses, staying on top of finances is the key to smooth operations and informed decision-making. Plus, having an efficient bookkeeping system helps Amazon and Shopify sellers gain confidence in their numbers — tracking sales, managing expenses, and reconciling payments on the go.
Let’s first understand the basic differences between Amazon and Shopify. This not only helps you grasp the scope of accounting but also guides your growth strategy on both platforms. Amazon and Shopify are two of the most popular e-commerce platforms, but they serve different purposes and offer distinct advantages.
Aspect | Amazon Sellers | Shopify Sellers |
---|---|---|
Marketplace vs. Independent Selling | Sell on Amazon’s marketplace as a third-party seller | Independent selling through own website/storefront |
Tax Differentiation | Amazon may handle sales tax collection and remittance for sellers (May vary by location) | Sellers are responsible for sales tax collection and remittance |
Control and Ownership | Limited control over branding and customer experience; subject to Amazon’s policies | Full control over branding (online web builder), customer experience, and store policies |
Ease of Start vs. Branding | Quick setup and access to a large customer base, but limiting branding control | Requires more effort to establish a brand presence, but offers full control |
Costs Involved |
| $39 to $399 per month |
Transaction Charges | Sellers are required to pay a FBA, shipping, packaging and storage and referral fee. | Shopify allows you to bring on your own partners for each service and they charge up to 2% transaction fee for payments made outside of the platform |
Marketing Options | Competitive pricing, paid ads | Social media integration, discount codes, gift cards, SEO |
Storefront Customization | ||
Email Marketing |
Best Practices for Amazon and Shopify Bookkeeping
Let’s look at eight of the finest bookkeeping practices for Amazon and Shopify sellers, setting your brand apart from the competition.
1. Set up a Separate Business Banking
The first thing Amazon and Shopify sellers should do is set up separate bank and credit card accounts in order to facilitate streamlined bookkeeping. Since a separate business account enables you to determine the true financial health of the business, it makes it easier to file taxes and prepare financial statements. This practice also facilitates better budgeting and planning. If you are selling in foreign currencies and your seller platforms allow you to connect an FX account, it’s recommended that you use digital banking services like Wise to save on exchange rate losses.
2. Choose the Right Bookkeeping Method
When it comes to e-commerce bookkeeping, there are two accounting methods sellers can choose from: cash vs accrual basis. While the cash basis method records income and expenses when cash is received or paid, the accrual basis records them when they are earned or incurred (regardless of cash flow).
for example, your Amazon statement period is from December 11th to 24th, 2023, and the payment date is January 1st, 2024. Under accrual accounting, you would record the full month of Amazon sales within that month, based on the statement period. However, with cash accounting, the revenue would be recorded based on the deposit date, which falls in January, even though the sales were related to December. Remember, the method chosen by businesses depends on the specific needs of their business, including operations and complexity. Once you choose one of these bookkeeping methods, you will have to file paperwork with tax agencies in order to change it. E-commerce businesses are recommended not to use the cash accounting method.
3. Calculate and Track the COGS Accurately
Cost of goods sold (COGS) is one of the most important metrics for e-commerce businesses. By tracking the costs per unit, this figure gives you an idea about which SKUs are not performing well, indicating excess inventory or suboptimal pricing.
For Amazon and Shopify sellers, the COGS represents the total expense incurred in producing or sourcing and distributing a product (shipping, warehousing, credit card fees related to sales). Remember, the overhead expenses like marketing, payroll, or office space are not included.
E-commerce sellers are advised to include direct costs (merchant fees, transaction processing, shipping) in COGS rather than treating them as operating expenses because they directly contribute to the cost of sales.
4. Manage Inventory Levels
For sellers who want to maintain their cash flows and keep their customer base satisfied, staying on top of inventory is the way to go. This helps you know how many units you should order and when, set ideal price points, and prevent over/under stocking. Ideally, e-commerce businesses should track their inventory levels on a daily or weekly basis for the reordering point of view. Monthly and quarterly tracking should be fine to stay informed about sales trends and product performance as well as bookkeeping and reporting.
A few methods Amazon and Shopify sellers can use for inventory valuation:
Just in time inventory (JIT)
First In, First Out (FIFO)
Last In, First Out (LIFO)
Average Cost Valuation (ACV)
5. Sales Tax Compliance
When it comes to Amazon and Shopify sellers, one of the most crucial aspects of smooth operations is managing sales tax efficiently.
We recommend reading through this article “taxes” to understand sales tax compliance across Canada and the United States: This article covers the following points:
- How to keep track of when and in which provinces/states your business is required to register for sales tax.
- Automate -> charge, collect, reconcile, submit, and remit the correct amount of sales tax.
- Save you accurate and maximum input tax credits (ITC).
- Guide throughout the process and give your business confidence to navigate the sales tax complex compliance.
6. Save Receipts and Invoices for Financial Analysis
If you’re running an e-commerce store, not saving the receipts and invoices can mean ending up in the most common bookkeeping pitfalls for ecommerce businesses. Providing solid proof of every business transaction, these documents help sellers track their purchases and sales accurately. Plus, these receipts can be invaluable come tax time, helping to identify tax-deductible expenses, and providing evidence for any deductions during audits.
But this doesn’t mean saving paper receipts. Going digital when it comes to invoices and receipts is an essential step in getting your accounting house in order. Digital documents mean enhanced security, real-time sharing, time savings, and error reduction.
Apart from this, saving invoices also aids businesses in financial analysis by evaluating revenue, expenses, and profit margins. Tools like Dext or Hubdoc can help you organize your financial documents effectively.
7. Automate Data Syncing and Monitor Cash Flow
Amazon and Shopify sellers should automate data syncing between their e-commerce platform and accounting software (Xero, QuickBooks, etc). This integration helps you transfer sales, cogs, and other financial data from your e-commerce dashboard to the accounting software on real time basis.
Remember, transactions may be missed or duplicated without proper syncing, leading to discrepancies in financial reporting. This is where A2X comes in — an e-commerce accounting software that helps bookkeepers reconcile their financial transactions. Thanks to its integration with Shopify, Amazon, Walmart, Bigcommerce, eBay, and Etsy you can fetch and settle transactions directly from your e-commerce platform.
Confused about which apps you should use to streamline the cash flow and financial reporting of your e-commerce platform? Here are some essential tools to boost your online success.
8. Regularly Review Your Financial Reports
In order to facilitate informed decision-making, Amazon and Shopify sellers should review their financial statements once every month. These reports tell you all about the company’s financial performance, including revenue, expenses, profitability, tax payables and debt. Plus, they help sellers gauge the amount of available funds for reinvestment.
While there are a bunch of financial reports one should track, here are three of the most important ones:
- Profit and Loss Statements (P&L):
- Balance Sheet
- Cash Flow Statement:
Recommended article to learn: How to Review Monthly Financial Statements
Recommended guide to learn: 10 Best Accounting KPIs to Grow Your Business Faster
9. Hire a Professional Accountant/Bookkeeper
As your e-commerce business grows and you establish a digital storefront, hiring a professional bookkeeper and/or accountant may be a wise choice. These individuals are experts in handling complex tax regulations, helping businesses cash out on maximum tax deductions, and steer clear of costly audits.
Apart from this, outsourcing the bookkeeping aspect helps Amazon and Shopify sellers free-up their valuable time to focus on core business activities. Think about it: you can develop a killer marketing strategy, sort out the customer service, or even manage the customer service using all the time that’d otherwise be spent on handling daily transactions!
Wrapping it All Up
You didn’t launch your e-commerce business to spend your days reconciling transactions and managing finances. Yet, as vital as it is, bookkeeping can quickly become overwhelming, especially as your business exceeds the 10 SKUs and $10K sales mark. So, why not consider hiring an expert?
At Transcounts, we understand the challenges that Amazon and Shopify sellers face when it comes to bookkeeping, payroll, financial statements, inventory, and sales tax. That’s why we offer comprehensive services tailored to the needs of small and medium-size online sellers. So, outsource the bookkeeping to professionals like us and focus on what truly matters – growing your e-commerce business.
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