Bookkeeping for E-commerce: Here’s What You Need to Know

I know you’ve heard the term bookkeeping before—especially if you're running an e-commerce business. But let's be real: sometimes the finer details of what it really entails can get a little blurry. You’re juggling sales, inventory, and shipping… bookkeeping can feel like just another task on an endless to-do list. Don’t worry, though—that’s what I’m here for.

After reading this post, you'll understand what bookkeeping for e-commerce is, why bookkeeping is important for your business (hint: the IRS cares), and how you can get it done without losing your mind.

So let’s dive right in…

What Is Bookkeeping?

So first, what exactly is bookkeeping?

At its core, it’s the process of systematically recording, organizing, and managing all the financial transactions of a business in one place. It’s more than just keeping tabs on what comes in and what goes out—it’s about creating an accurate, detailed record that reflects the true financial state of your business. Ultimately, it’s about putting together information that tells the story of what's happening in your business, allowing you to see the bigger picture and make smarter moves.

The steps involved in bookkeeping are straightforward but require consistency. At a bare minimum, you should be completing these steps each month to keep your records accurate and up to date:

1. Recording Transactions: Every financial activity—whether it's a sale, expense, or investment—needs to be recorded. This includes everything from sales revenue, vendor payments, operating expenses, and any other financial movement in and out of your business.

2. Categorizing Transactions: After recording, transactions must be categorized into the appropriate accounts within your chart of accounts. The chart of accounts is a detailed framework that helps organize every type of transaction into categories like sales, expenses, liabilities, and more. Proper categorization makes it easier to track and analyze where your money is coming from and going to—something we’ll explore in a future blog.

3. Reconciling Accounts: This step ensures that what’s recorded in your bookkeeping system matches your bank and credit card statements. It helps catch any errors or discrepancies so you can correct them promptly.

4. Managing Accounts Payable and Receivable: Bookkeeping also involves tracking money owed to your business (accounts receivable) and money your business owes to others (accounts payable). Keeping this organized ensures your cash flow remains steady.

5. Producing Financial Reports: The final step is to use your bookkeeping records to generate important financial reports, like income statements, balance sheets, and cash flow statements. These reports give you insight into your business’s financial performance and help with tax filing and planning.

For an e-commerce business, there are a few additional bookkeeping tasks to handle because of the complexity that comes with selling products online across various platforms and regions. Unlike service-based businesses, e-commerce involves managing inventory, multiple sales channels, and sales tax obligations across different regions.  These extra steps are essential to ensure your records stay accurate and you remain compliant.

Additional Bookkeeping Steps for E-commerce Businesses:

1. Update your chart of accounts: The first step is ensuring your chart of accounts is properly updated to track activity from different platforms. Create clearing accounts for each merchant, like Shopify, Amazon, or PayPal, to keep a clear record of payments and deposits. Don’t forget to add a separate processing fee account to track platform fees. If you sell on multiple platforms, it’s also a good idea to create distinct sales accounts for each one, so you can easily analyze performance by channel.

2. Track sales tax obligations: For e-commerce businesses, tracking sales tax is a must. You need to collect and remit sales tax based on where your customers are located, which often means complying with different rules and rates depending on the state or country. Keeping detailed records of your sales tax collections and ensuring that you remit them on time is critical to staying compliant and avoiding penalties.

3. Manage inventory levels: Accurate bookkeeping for e-commerce includes monitoring your inventory. This means tracking when inventory is purchased, sold, or lost, and ensuring it’s accurately reflected in your financial records. Proper inventory tracking helps you plan purchases and avoid stockouts while providing accurate data for calculating the cost of goods sold (COGS).

4. Calculate your cost of goods sold (COGS): This step is key for understanding your profitability. COGS represents the direct costs of producing the goods you sell. Regularly updating your COGS ensures your financial statements reflect your actual profit margins, which is crucial for tax purposes and business decisions.

5. Reconcile sales channels: Since e-commerce businesses often operate across multiple platforms, it’s important to reconcile transactions from each sales channel. This involves ensuring that the sales and payments recorded in your accounting system match what actually happened on platforms like Shopify, eBay, or Amazon. It’s an important step to avoid discrepancies and get a complete picture of your business’s performance.

So yeah, bookkeeping is a bit more complex in the e-commerce world, but I promise it doesn’t have to be overwhelming.

Why Should You Care About Bookkeeping for Your E-Commerce Business?

“Is bookkeeping really that important for my e-commerce business?” 

The short answer is: yes, absolutely! Despite what some may think—like the idea that as long as sales are coming in, the details can be ignored—bookkeeping is essential for the long-term success of your business. Neglecting it can lead to significant problems down the road, such as costly mistakes or compliance issues that could jeopardize your operations.

Let’s break down why bookkeeping is crucial:

The IRS Requires It

First and foremost, the IRS mandates that anyone in business to make a profit must keep records of their income and expenses.   Skipping this step can lead to penalties or even an audit. By keeping your financial records organized, you not only simplify tax season but also protect yourself from unwanted scrutiny.

Cash Flow Management

Do you know exactly how much money is coming in and going out? If not, you’re flying blind. Bookkeeping gives you a clear view of your cash flow, helping you understand where your money is allocated—whether it’s going towards inventory, shipping costs, or advertising. Trust me—you don’t want to be guessing here. Poor cash flow management is a leading cause of small business failure, but with diligent bookkeeping, you can avoid unexpected financial pitfalls.

Inventory Tracking and Profitability

And let’s not forget about inventory management, a crucial aspect for any e-commerce business. Good bookkeeping allows you to track the value of your inventory, monitor how quickly products are moving, and analyze their impact on your profitability. Without accurate records, calculating true profitability becomes nearly impossible, especially when you consider the costs associated with your inventory.

How to Get Your Bookkeeping Done

Okay, now that you know what it is and why it’s important, how do you actually get it done? 

You’ve got a couple of options:

1. Hire a Professional
   If you’d rather focus on growing your business than tracking every sale, hire a pro. A firm like ZAJ Accounting Services (that’s us!) specializes in e-commerce bookkeeping and can help you stay organized without lifting a finger. We take care of everything so you can get back to what you do best—selling!  Check out our Bookkeeping Services page for more info, or schedule a consultation today!

2. Do It Yourself
   Want to save some money and feel confident managing your own books? You can totally DIY it, especially if you’re just starting out. All you need is some good accounting software.  Tools like QuickBooks, Xero, or A2X are great for automating your bookkeeping. They can sync with your e-commerce platforms and keep track of all your sales and expenses. Plus, they make tax time so much easier.
   

At the end of the day, no matter what anyone says, bookkeeping isn’t just data entry—it’s the backbone of your business. It’s how you track your financial health, comply with IRS rules, and make smart decisions that drive growth. Skipping it could cost you big time, but staying on top of your books will set your business up for long-term success.

Disclaimer: The content on this blog is for informational purposes only and does not constitute professional financial advice. While I am an accountant and tax professional, the information here should not be relied upon without seeking advice from a professional tailored to your individual circumstances. I disclaim any liability for actions taken based on the content of this blog.