Accounting Basics: What You Need to Know to Run a Successful e-Commerce Business
18 August 2021
Accounting should be a top priority for small businesses to secure financial stability. Yet, some small business owners struggle with the decision to hire a professional. Are you familiar enough with accounting basics to run a successful e-commerce store?
Keep reading to test your knowledge of general accounting terms. And learn how they relate to the financial security of your business.
What Is E-Commerce Accounting?
E-commerce accounting encompasses all financial activity involved in managing your online business. This includes financial statements and reporting, tax planning, and analysis. It’s also bookkeeping of transactions, invoices, assets, liabilities and owner equity.
Some of those words may seem confusing. You’ll feel better with definitions of basic terminology associated with small business accounting.
Accounting 101: Basic Terminology
Do you know the difference between what you own and what you owe? A basic understanding of business accounting terminology could help you figure that out:
- Assets - things of value your business owns and can convert to cash
- Liabilities - Financial obligations or debts your business owes another entity
- Owner Equity - cash on hand to finance routine operations
- Revenue - money earned selling products or services
- Expenses - your costs to run the business
- Debits - money paid by your business, increasing assets or decreasing liabilities
- Credits - money received by your business, decreasing expenses and increasing revenue
You must maintain a list of all business income and expenses. Next, you’ll learn basic accounting methods for preparing financial statements.
Business Financial Statements for Beginners
With a booming e-commerce store, you’ll have many of the common business expenses. But, you’ll also have the great sales volume to offset those expenses. Maintaining financial statements helps you stay abreast of your business finances.
You can use a balance sheet to assess your company’s financial state. The formula for balanced books is:
Assets = Liabilities + Owner Equity
An income statement tells you if you’re profitable. It’s a record of your revenue, expenses, gains, and losses. A simple income formula is:
Net Income = (Total Revenue + Gains) - (Total Expenses + Losses)
Cash Flow Statement
A cash flow statement records the control of operating, financing, and investing activities. A negative cash flow stems from inadequate funds to finance your business.
Getting Started: Business Account
You don’t want to commingle your business and personal finances. Open a business bank account for your e-commerce store to track money moving in and out. Then establish secondary payment methods, like a PayPal business account.
To protect yourself from overspending, create a budget upfront. With a business bank account, it’s easier to check business expenses. So you can track actual expenses to ensure you stay within budget.
Funds kept in your business account should go toward business expenses only.
A hardback ledger of accounting entries is so old-school. Accounting software makes your mission much easier now. Invest in a product that can handle a diverse set of financial data.
Use basic accounting software to record transactions and create reports. As your business grows, you may need a more robust software suite for timekeeping and payroll. But software with accounting, bookkeeping, and tax preparation should suffice to get started.
Accounting For Your E-Commerce Store
Don’t let your operating finances take you by surprise. Bookkeeping and accounting provide the financial status of your business at any time. Feel confident about accounting and reports confirming the health of your business
Accounting for your e-commerce store could get overwhelming. Bookmark this page and then contact 10. Chartered Accountants for your accounting solution.
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