Your ecommerce business is thriving. Sales are coming in and customers are happy. But behind the scenes, things are messy. You’re juggling spreadsheets, struggling to track profits, and dreading tax season because you’re worried your numbers won’t quite add up.
If this sounds familiar, you’re not alone. Without a clear financial system, expenses pile up unnoticed, cash flow gets unpredictable, and smart decision-making is replaced by guesswork.
But it doesn’t have to be this way. Ecommerce accounting is the backbone of a profitable, stress-free business that lets you take control of your finances and set your business up for long-term success. Let’s break down what you need to know to streamline your books.
Understanding ecommerce accounting
Ecommerce accounting is the process of recording, organizing, and analyzing all financial transactions related to your ecommerce store. It comes with added layers of complexity — like payment processing fees, delayed payouts, and multiple sales channels. If you’re not careful, it’s easy to lose track of your financial standing.
Here’s an example: When a customer makes a purchase on your ecommerce platform, the payment processor doesn’t immediately deposit the full amount into your bank account. Instead, it deducts processing fees, holds the funds temporarily, and then transfers a lump sum payment that may combine multiple transactions from different days. This delay means your bank account balance doesn’t always reflect what happened in your store.
Without proper bookkeeping, this can create confusion. Where did that deposit come from? How much of it was actual revenue? What are you paying in processing fees? To make sense of it all, you need to categorize transactions correctly and reconcile your records with the data from your sales channels.
This is where ecommerce accounting software like QuickBooks Online comes in. It helps you track financial transactions and generate accurate financial reports so that every dollar is accounted for. Whether you use cash basis accounting or accrual accounting, having a clear system in place makes it easier to manage profit and loss and plan for the future.
What ecommerce accounting includes
Ecommerce accounting is about understanding where your money is coming from, where it’s going, and how to keep your business financially healthy. Here are some of the key components.
1. Revenue recognition and sales tracking
Ecommerce businesses usually sell through multiple sales channels like Shopify, Amazon, and BigCommerce, each with different payment processing timelines. Proper tracking of sales ensures that you recognize revenue accurately.
2. Expense management and cost of goods sold
Running an ecommerce store involves various costs, from inventory management to processing fees from payment processors like PayPal and Stripe. A major part of this is the cost of goods sold (COGS), which includes everything from manufacturing and packaging to shipping costs. Keeping track of these costs helps you determine your true profit margins.
3. Sales tax compliance
Each state or country has different tax laws, and depending on your nexus (where your business has a tax obligation), you will likely need to collect and remit sales tax. Failing to comply can result in hefty fines. A solid ecommerce accounting integration can automate sales tax calculations to keep your business compliant.
4. Reconciliation and financial reporting
Because payment processors don’t deposit funds immediately, your bank account balance won’t always match what’s happening in your store. Regular reconciliation makes sure that your financial statements (like your balance sheet and profit and loss statement) accurately reflect your business’s financial standing.
5. Cash flow management and forecasting
With delayed payouts and fluctuating expenses, managing cash flow is critical for an ecommerce business. A strong accounting system helps you monitor when funds are coming in and whether you have enough cash on hand to reinvest in inventory or cover operational costs
The importance of accounting for ecommerce
Many ecommerce sellers assume that if money is coming in, they’re doing fine. But between sales channel fees, shipping costs, and inventory management, your actual profits might be lower than you think.
Here’s why keeping a close eye on your numbers is crucial.
Prevent financial surprises
One of the biggest challenges in accounting for ecommerce businesses is understanding where your money is actually going. Since payment processors like PayPal, Stripe, or Shopify Payments hold funds before depositing them in your bank account, what you see in your account balance doesn’t always reflect your true revenue. Proper bookkeeping helps you account for all income and expenses, so you’re never caught off guard.
Make better business decisions
Scaling an ecommerce store involves knowing which products are profitable and where to cut costs. A strong accounting system helps you track profit margins and understand seasonal trends. With accurate financial statements, you can confidently expand to new sales channels or adjust pricing strategies.
Stay compliant with tax regulations
Ecommerce taxes can get complicated fast. If you sell across multiple states or countries, you may be responsible for collecting and remitting sales tax based on nexus rules. Without an organized accounting and bookkeeping system, tracking tax obligations becomes a nightmare. Keeping clean records and leveraging ecommerce accounting software helps you stay compliant and avoid costly penalties.
Secure funding and business stability
If you ever need a business loan or investor funding, you’ll need clear and accurate financial reports to prove your financial health. Lenders and investors want to see detailed profit and loss statements, balance sheets, and cash flow statements before they commit.
Having well-maintained financial data not only helps with external funding but also makes sure you’re making sound financial decisions for long-term success.
Accounting methods for ecommerce
When it comes to ecommerce accounting, businesses generally choose between two primary accounting methods: cash basis accounting or accrual accounting. The method you choose affects how you track your sales, expenses, and overall financial health — so it’s important to pick the right one for your business.
Cash basis accounting
With cash basis accounting, you only record income when you receive payment and expenses when you pay them. It’s straightforward, easy to manage, and works well for small or new ecommerce businesses that don’t have a ton of transactions. Since you’re only tracking cash flow, you don’t need complex accounting software like QuickBooks Online.
But there’s a big downside: it doesn’t give you a full picture of what’s happening financially. If you’ve made a lot of sales but haven’t received payments yet, or if you owe money to suppliers, your records won’t reflect that.
Accrual accounting
Accrual accounting tracks money when it’s earned, not just when it enters your bank account. That means if you sell a product today but won’t get paid for a week, the sale still gets recorded today. The same goes for expenses — you log them when they happen, even if you haven’t paid yet.
You’ve probably heard of accounts receivable and accounts payable. These ledgers are used to record sales and purchases, respectively, even though the funds haven’t yet been added to or removed from your bank account. Once a payment is received or sent, these accounts are debited by that amount to reflect the reduction in money owed.
This approach gives a more accurate view of your business’s finances, especially when dealing with inventory, multiple sales channels, and delayed payments from ecommerce platforms. Ecommerce accounting software can help track these nuances, which helps automate reconciliation and tax tracking.
How each accounting method works
To better understand the difference between cash basis accounting and accrual accounting, let’s look at a few real-world scenarios. The table below illustrates how each method records transactions, affecting how revenue, expenses, and profits appear in your financial reports.
|
Scenario |
Cash basis accounting |
Accrual accounting |
|
You sell a product on March 1 for $500, but Shopify deposits the funds on March 7. |
The sale is recorded on March 7, when the money hits your bank account. |
The sale is recorded on March 1, when the order was placed. |
|
You purchase $300 worth of inventory from a supplier on April 5, but you don’t pay them until April 20. |
The expense is recorded on April 20, when the payment is made. |
The expense is recorded on April 5, when the order is placed. |
|
Your Shopify account deducts a $20 transaction fee from the sale. |
The expense is recorded when Shopify withdraws it from your payout. |
The expense is recorded at the time of the sale, even if the payout hasn’t arrived yet. |
|
At the end of the year, you have $2,000 in pending sales that haven’t been deposited yet. |
These sales don’t appear on your books until the money is received. |
These sales are recorded, giving a more accurate picture of revenue for tax purposes and profitability measurements. |
Which method is best for ecommerce?
While cash basis accounting is fine for small sellers just getting started, most growing ecommerce businesses benefit from accrual accounting.
Since payments from platforms like Amazon or Shopify come in as lump sums, accrual accounting helps you track exactly what’s happening. It also makes financial forecasting, tax planning, and managing the cost of goods easier.
Ecommerce accounting best practices
By following a few key best practices, you can keep finances organized, avoid tax headaches, and make more informed business decisions. Here are five essential accounting practices for your ecommerce business.
1. Track inventory properly
Running out of stock means lost sales, but ordering too much ties up your cash in unsold goods. Inventory accounting helps you track what’s coming in, what’s selling, and what needs restocking.
Using inventory management tools like Fishbowl can streamline this process. Fishbowl integrates seamlessly with platforms like Shopify, BigCommerce, and QuickBooks, so your inventory and financial data stay updated according to your schedule. Plus, with automated tracking and detailed reporting, Fishbowl helps you maintain optimal stock levels while keeping finances accurate.
2. Reconcile accounts regularly
Payment delays, processing fees, and refunds can make it hard to understand what funds are actually available. That’s why regular reconciliation is essential. It’s a key step in the accounting cycle that ensures every financial transaction is recorded and categorized correctly. By reconciling your accounts consistently, you catch errors early and stay on top of cash flow.
3. Automate wherever possible
Manually entering transactions is a waste of time and increases the risk of mistakes. Automating bookkeeping with cloud accounting tools like QuickBooks Online can help you track sales, sync data across sales channels, and even handle accounts payable. You can focus on selling instead of getting lost in spreadsheets or complicated software.
4. Keep an eye on cash flow
Making sales is great, but you need to have enough on hand to cover expenses. Monitoring your cash flow statement helps you plan for slow periods, pay bills on time, and make smarter financial decisions.
5. Stay compliant with sales tax
Sales tax can be a headache, especially with different rules depending on where you have nexus. The right ecommerce accounting software can help calculate and track taxes for you, and working with an experienced accountant helps you stay compliant and avoid costly mistakes.
Top ecommerce accounting software and tools
Whether you’re a small business or a growing enterprise, choosing accounting software that integrates with your ecommerce platform and inventory management system is key. Here are four solid options to consider.
QuickBooks Online
QuickBooks Online is one of the most widely used accounting software solutions for ecommerce businesses. It integrates seamlessly with major ecommerce platforms like Shopify, BigCommerce, and Amazon, allowing you to automatically sync financial transactions, generate financial statements, and track cash flow in real time.
QuickBooks also integrates with Fishbowl, making it easier to manage inventory, track invoicing, and sync financial data across platforms for maximum visibility. In fact, Fishbowl is the #1 inventory solution for QuickBooks users.
Xero
Xero is a powerful cloud accounting tool that simplifies bookkeeping, payment processing, and reconciliation. It’s great for businesses that sell on multiple sales channels because it integrates with various ecommerce platforms and payment processors.
Reckon
Reckon is a good alternative for small businesses looking for an affordable yet functional business accounting tool. It covers essentials like cash flow management, sales tax tracking, and profit and loss reporting.
While it may not have as many integrations as QuickBooks or Xero, it’s a solid option for ecommerce businesses that need a straightforward solution without a hefty price tag.
NetSuite
NetSuite is a full-fledged ERP system designed for large businesses handling high transaction volumes across multiple sales channels. It offers advanced inventory accounting, accounts payable automation, and real-time financial reports. But, due to its complexity and cost, it’s best suited for established ecommerce businesses rather than startups or small operations.
Why Fishbowl Commerce Suite is great for accounting
Fishbowl Commerce Suite simplifies ecommerce accounting by connecting your ecommerce store, accounting software, and inventory management system in one unified hub.
Here’s why it’s a game-changer for ecommerce businesses.
1. Automate your accounting and inventory tracking
One of the biggest challenges in ecommerce accounting is keeping financial records up to date while tracking inventory levels across different platforms. If you’re manually entering sales, expenses, and stock adjustments, you’re not just wasting time — you’re also at risk of introducing errors into your data.
Fishbowl Commerce Suite integrates seamlessly with QuickBooks Online, Shopify, BigCommerce, Amazon, eBay, and more, automating the flow of data between your sales channels and accounting system.
It offers:
- Transaction syncing: Record sales, refunds, and expenses in your books, eliminating manual data entry.
- Real-time inventory updates: Fishbowl tracks stock levels, backorders, and reorder points, ensuring you never run out of popular items.
- Multichannel support: If you sell on multiple ecommerce platforms, Fishbowl consolidates sales and inventory data into one system.
2. Get real-time financial insights
Many ecommerce businesses struggle with cash flow management because they don’t have a clear picture of their finances until they review their books at the end of the month. This lag can lead to problems like overspending on inventory, miscalculating profits, or failing to set aside money for taxes.
With Fishbowl, you get real-time financial reports that give you instant visibility into:
- Revenue and sales performance: See how much you’re earning and which products drive the most revenue.
- Profit margins: Track COGS, transaction fees, and other expenses to understand your true profitability.
- Cash flow projections: Avoid cash shortages by monitoring incoming payments and upcoming expenses.
- Tax liabilities: Get a clear breakdown of how much you owe in sales tax to make tax season a breeze.
Having real-time financial insights means you can make smart business decisions faster, helping you scale efficiently.
3. Simplify sales tax and processing fees
Sales tax compliance can be a nightmare for ecommerce businesses, especially if you’re selling across multiple states or countries. Each jurisdiction has its own tax rules, and manually calculating sales tax for every transaction is time-consuming and prone to errors.
Fishbowl helps simplify this by:
- Tracking sales tax obligations: It automatically records sales tax amounts and categorizes them correctly in your accounting system.
- Generating tax reports: Easily pull up reports for tax filings so you can file accurately and on time.
Beyond sales tax, payment processing fees from platforms like Shopify, PayPal, and Stripe can eat into your profits if you’re not keeping track. Fishbowl automatically records these fees so you know exactly how much you’re paying and can adjust pricing or sales strategies accordingly.
4. Support accrual accounting
While cash basis accounting records transactions when money moves, accrual accounting provides a more accurate financial picture by tracking income and expenses when they occur.
Fishbowl makes accrual accounting easier by:
- Recording sales accurately: Record sales when orders are placed, not just when payments are received.
- Tracking accounts payable: Know exactly how much you owe suppliers and when payments are due.
- Managing accounts receivable: Stay on top of unpaid invoices and follow up with customers who haven’t completed payments with Fishbowl’s reminders.
- Accessing both Fishbowl and QuickBooks: Fishbowl’s Chart of Accounts module maps accounts between Fishbowl and QuickBooks Online. Easily toggle between them instead of having to do it from the accounting software.
For ecommerce businesses that want to accurately track profitability, plan for growth, and secure funding, accrual accounting is often the better option, and Fishbowl simplifies the process.
5. Scale with confidence
As your ecommerce business grows, so does the complexity of managing finances. What works when you’re processing 50 orders per month may not be sustainable when you’re handling 5,000.
Fishbowl is built to grow with your business, offering features that help you scale without outgrowing your accounting system:
- Multi-location inventory tracking: If you expand to new warehouses or fulfillment centers, Fishbowl helps you manage stock across multiple locations.
- Order automation: Set up automated reorder points and restocking alerts to keep up with demand.
- Advanced reporting: Gain deeper insights into sales trends, inventory turnover, and business performance.
Streamline your finances, maximize your growth
Managing ecommerce accounting doesn’t have to be a headache. With the right system in place, you can gain complete control over your financial data and make smarter business decisions.
Fishbowl Commerce Suite is designed to do just that. It integrates seamlessly with QuickBooks Online and other top business solutions, so your inventory and financial reports are always in sync.
Don’t let messy finances slow your growth. Take control of your numbers and set your ecommerce store up for long-term success. Book a demo today to see how Fishbowl can simplify your accounting and fuel your growth.