5 Warning Signs Your eCommerce Bookkeeping is Incorrect

Ecommerce businesses have a lot going on. Between making sure you’re providing products your customers want, getting shipments out to them timely and everything else you have going on everyday, sometimes accounting tasks fall to the bottom of the to-do list.

But keeping track of your finances is crucial if you want to grow your business. That’s why today, we’re going to talk about five things you can look for in your accounting records that may be a red flag that your bookkeeping is incorrect.

So here we go:

Your balance sheet doesn’t show an inventory balance or the inventory balance never changes.

If you’re an ecommerce business and your balance sheet doesn’t show inventory that’s a red flag. The products you have in your inventory should be reflected on the balance sheet.

Another red flag? An inventory balance that never changes. Sometimes a company may choose to record inventory changes in their accounting records periodically but if you have an inventory balance that stays the same year over year, something is amiss.  

Simplify keeping track of your inventory by either using a spreadsheet to track it or using an app specifically designed to help you manage inventory. Apps like Zoho Inventory, Cin7 or Ecomdash can make tracking inventory easy.

You have no sales tax liability on your balance sheet.

No sales tax liability account on your balance sheet could mean a few things. Either you’re not collecting sales tax from your customers or you’re recording the sales tax collected incorrectly.

If you aren't collecting sales tax at all, this could be a big compliance issue. Unless you're physically located in one of the four states where there is no sales tax, you have a responsibility to at least collect sales tax for sales made to customers in your state. And if you meet certain criteria in other states, you might have an obligation to collect and remit sales tax in those states as well.

Make sure sales tax functionality is turned on where appropriate in your sales channels. And if you haven't been collecting taxes in a state where you're obligated to collect, you may want to reach out to a professional to help you get caught up and compliant.

If you're collecting sales tax but not recording it you could have a mapping issue if you're using an app to bring data into your accounting system. Or you're not recording it manually. Check your apps to make sure they're set up to record sales tax liability in your accounting software correctly. And if you're manually recording sales transactions, be sure you're recording the sales tax collected for each sale.

And finally, make sure you're not recording sales tax to an expense account. Sales tax is a liability to your company because you've collected it on behalf of and must remit it to the state in which you're doing business. Sales tax collected from customers isn't an expense to your company and shouldn't be recorded as one.

Your profit and loss statement doesn’t show balances for merchant fees, discounts or returns.

This usually happens when you’re recording your sales incorrectly. If you’re recording the net amount you receive from your payment processor as sales, this is incorrect.

Instead, use your ecommerce platform reports to find the gross sale amount for each sale you make. This is the amount that should be recorded in sales. Merchant fees, discounts, shipping and returns should all have their own accounts in your chart of accounts and should be recorded to those accounts.

And at the end of each period, you should review your reports from your sales channels to make sure you've captured all sales, fees, returns, and sales tax in your accounting system.

You’re having a hard time keeping records up to date.

When your business is growing, you might not have time to keep up with the day-to-day accounting tasks. Not having up to date accounting and financial information makes it impossible to grow your business. If you don’t know how your business is doing, how can you make decisions?

From knowing how much inventory you should purchase to whether or not you have the funds to hire help, out of date financial information will kill your business.

If you find you’re always behind and don’t have the information you need to make good decisions, it might be time to look at outsourcing these tasks.

You’ve connected apps to your accounting system but when you review your reports, you feel something isn’t right.

There are lots of apps that can streamline and make ecommerce accounting easier and more accurate. But if these apps are connected incorrectly, instead of making your life easier, they could give you a headache when they start dumping information into your accounting system.

If after connecting apps you’re reviewing your reports and see balances that look incorrect or information showing up in unexpected places, your app may not be connected correctly or may be mapped to the incorrect accounts in your accounting software.

So that's it. If you review your accounting reports and notice any of these things. It might be a sign that your bookkeeping is incorrect.

And if you're ready to outsource your eCommerce bookkeeping to experienced professionals who are experts at eCommerce accounting, reach out to us for a free consultation.

And let me know, do you notice any of these things in your bookkeeping?