Imagine you’re in a foreign country and do not speak the local language. Even ordering a coffee or asking directions can be a real challenge! To make things go a little smoother, you might need a translator to be able to communicate effectively. Someone who not only speaks the local lingo, but your native tongue, as well.
This is true for the ever-expanding industry of online buying and selling, too. To be able to communicate your financial position effectively, your bookkeeper must speak ecommerce. The distinct dialect of ecommerce bookkeeping begins with the chart of accounts. The choices you make as you build and organize your chart of accounts will shape your entire business.
At bookskeep, all of our clients begin with our custom chart of accounts for ecommerce sellers. These accounts are crafted to capture all the revenue from each channel as well as the correlating fees. This allows your reporting to be more detailed and accurate and gives you the ability to make confident financial decisions based on your numbers.
One of the most common mistakes we see is not recognizing revenue in its entirety. For example, let’s say that you receive your deposit from Amazon. It hits the bank account. A typical action would be to claim it all as revenue. But if you do a little research in your Amazon Settlement Report, you can find the detail of that deposit transaction. In that transaction detail, you will see the amount deposited into your account was not the gross amount of product sold, but rather the net amount. There are many fees and deductions that Amazon retains, in addition to the refunds activity. To get a clear picture of your financials including your gross margin, you must account for these deductions and your true revenue. But how? To account for them accurately, there must be proper buckets set up for them to be categorized into. Your accounting software’s template chart of accounts will not have these.
Just as having separate and specific bank accounts is a must for Profit First, having the right accounting categories for your income and expenses is a critical component for accurate ecommerce accounting. Getting all the detail on every nickel and dime makes all the difference, especially to the IRS when they look at your 1099K. Learning the language of ecommerce can be easy if you have the right translator and start with the basics.