E-commerce Accounting Guide for Online Businesses
Explore e-commerce accounting, its key methods, tax obligations, and tips for choosing software and experts to help your online business succeed.
E-commerce accounting: A practical guide for online businesses
Accounting is a taxing process, and if you’re an e-commerce business owner with complex inventory management, global customer bases, or ambitious growth plans, you may be looking for accounting solutions to ease your financial stress.
E-commerce accounting is essential, but it can be a tricky process to build out your accounting system, onboard an accountant, and ensure your books are accurate. In this guide, we’ll highlight steps you can take to make your accounting easier and more efficient. We'll also emphasize how the whole process can be made easier with Slash, the all-in-one financial management tool that allows you and your team to seamlessly bank¹, track expenses, manage accurate books, and handle complex transactions all in one dashboard.
What is E-commerce accounting?
E-commerce accounting is a specialized form of accounting tailored to e-commerce teams and businesses. E-commerce, like other industries, has specific needs, financial flows, and intricacies. In e-commerce, this means that teams sell products and services over the internet, often across borders and involving complicated inventory systems, third-party tools and platforms, and grander cybersecurity complexity.
E-commerce accounting can be differentiated from traditional accounting or other forms by its particular focus on managing sales, expenses, inventory, and taxes for online, digital, and often cross-border businesses. Slash is designed explicitly with e-commerce industry standards, norms, and needs in mind. Here’s how Slash’s e-commerce accounting differs from traditional accounting:
How e-commerce accounting differs from traditional accounting
The key differences between traditional and e-commerce business accounting can be broken down into a few key aspects:
- Inventory Management. Managing inventories for correct reporting is necessary in inventory-based accounting, which is common among e-commerce businesses as a method for ensuring inventory-based tax compliance.
- Third-Party Platforms. Shopify, Amazon, Plaid, and other e-commerce platforms can mean complicated, cross-site bookkeeping. Syncing across platforms and maintaining accurate bookkeeping are essential for producing reliable cash flow statements and financial records.
- Sales Taxes and more. Filing tax returns for an e-commerce business is complicated by the cross-border nature of e-commerce. Ensuring your accountant is aware of sales tax nexus obligations as well as global sales channel requirements, is necessary.
- Global Sales Channels. The global cross-border abilities of e-commerce markets can further complicate sales tax and financial management. Bookkeepers and accountants must monitor complex cash flow through numerous sales channels and taxable routes, including international VAT/GST obligations.
- Extensive Growth. E-commerce businesses may see extensive levels of growth. Managing the jump from small business to global enterprise means more complicated cash flow, payroll, and managing bookkeeping, financials, and financial statements.
Key accounting methods for e-commerce businesses
E-commerce is a broad form of business, often characterized by its online presence and global reach. Within e-commerce, there are a wide variety of companies with more specific structures and financial flows, requiring different approaches to e-commerce accounting. Here are the primary accounting methods for e-commerce businesses:
Cash-basis accounting
Cash-basis accounting for e-commerce transactions can be a relatively more straightforward accounting method for businesses, particularly helpful for companies just getting started with bookkeeping. Under the cash-basis accounting method, revenue and expenses are only recorded when money actually moves in or out of a business’s account. That means, outstanding invoices or unpaid vendor payments aren’t recorded in accounting books; instead, cash-basis accounting provides a real-time picture of your cash position.
For small and early-stage e-commerce businesses, the simplicity of cash-basis accounting can be a huge advantage, allowing small teams with limited time to manage the simplest form of accounting available. Additionally, this can be necessary for teams experiencing early e-commerce growth, where income is irregular and often forecasted around campaigns and product launches.
Cash-basis accounting, however, is not a one-size-fits-all accounting solution for e-commerce businesses. Because it doesn’t track receivables or payables, it often gives only a partial snapshot of your finances. You might see a healthy cash balance today, but overlook unpaid invoices or pending payouts from platforms like Shopify or Amazon that haven’t yet been deposited into your account. This blind spot is why the IRS limits cash-basis accounting to smaller businesses, and why growing e-commerce operators often outgrow it quickly.
Accrual accounting
Accrual accounting is an alternative method to cash-basis accounting for e-commerce businesses. Accrual accounting is distinguished by more complex revenue recognition, which involves recording transactions as they occur, regardless of whether a payment has actually been made and received. This means that accrual accounting involves recording debts and outstanding liabilities; so pending payouts from Shopify or upcoming liabilities are all recorded in your bookkeeping.
From most small to large e-commerce businesses, accrual accounting is a standard practice, allowing you to see a clear picture of your income and expenses by recording transactions when they’re earned or incurred, not just when cash is received. However, accrual accounting can be complicated for early-stage businesses.
Inventory-based accounting (or, cost of goods sold method)
Many e-commerce companies rely on complex inventory systems that require inventory-based accounting. Unlike cash-based or accrual accounting, this accounting method is based on the flow of goods from creation, storage, and purchase by consumers.
Inventory-based accounting is a crucial accounting method for e-commerce, as it records not only the revenue from a sale but also the cost of goods sold. This means that when you sell through a third-party platform like Shopify or Amazon, your books reflect the income and expenses tied to the inventory of that product.
Inventory-based accounting offers several advantages for accurate accounting, and it also provides a more comprehensive real-time view of your margins and profitability. This method, however, can be fairly complex and is challenging to manage for early-stage businesses with small accounting teams.
If your e-commerce business is scaling, your accounting needs may be growing faster than you can keep up with. Ensuring you stay on top of your books is essential, and finding a solution through accounting support can help you manage your business and finances accurately, efficiently, and beneficially for your continued success:
How an e-commerce accountant can benefit your business
An e-commerce accountant can offer myriad support services for your business accounting, especially as your team scales. Here are some of the key reasons why you should consider hiring an e-commerce accountant for your business:
Ensuring compliance with tax regulations
Taxes can get complicated, especially for e-commerce businesses. Whether you’re managing cross-border sales, extensive inventories, or newer areas like digital assets and crypto, the rules are constantly shifting. Trying to keep up with tax regulations on your own can drain time and energy that could be better spent on growth, and mistakes can expose you to unnecessary risk. That’s why hiring an accountant or CPA with direct experience in e-commerce can be invaluable. They’ll ensure your business stays compliant with the latest regulations, while also streamlining the tax side of operations so you can focus your energy back on scaling your business.
Optimizing cash flow and expense tracking
An accountant has an overview of all your finances. This lets them see areas of potential growth, such as overspending in one location, liabilities in another, or inefficiencies in cash flow more generally. Hiring an accountant to track your expenses and financial history will give you a tool for building better, more optimized, and efficient financial flows.
Improving reporting accuracy
Hiring an accountant with e-commerce accounting experience will help ensure you are reporting your business finances correctly. With industry-specific accounting experience, e-commerce accountants will be familiar with revenue streams, including third-party platforms like Shopify and PayPal, inventory management, foreign exchange transactions, refunds, and more complex transaction handling. With this knowledge, an e-commerce accountant can ensure you’re accurately reporting your financial flows and not incurring penalties.
Supporting strategic decisions
Beyond day-to-day decisions, accountants can shape e-commerce business strategies through their extensive knowledge of your business’s financial data. By analyzing revenue and income data, such as cash flows, cost structures, and customer trends, accountants can pinpoint areas where your business may strengthen its performance and improve financial health. Finding an accountant with e-commerce expertise can further help you make informed, industry-tailored strategic decisions, such as sales tax obligations, transaction fees, or inventory reporting.
E-commerce tax obligations
E-commerce businesses often must contend with cross-border, digital transactions, requiring companies to comply with multiple state and federal laws. To mitigate the potential ill effects of inaccurate tax filing and reporting, your business should consider hiring an accountant with e-commerce experience and a thorough understanding of the process to streamline it and ensure compliance with tax obligations.
For e-commerce businesses operating in multiple states, sales taxes and sales tax nexus relate to tax obligations designated by the different states where you sell to consumers. Even if you’re not physically in the state, sales tax obligations follow you through nexus and require robust systems of accurate reporting.
For e-commerce businesses operating in multiple countries, they not only contend with sales tax obligations, such as sales tax nexus, but also with international VAT/GST. This refers to country obligations that require businesses to register, collect, and file taxes on sales made to residents of that country. It’s important to account for taxes in the state, country, or location where you sell. Complying with filing and reporting requirements is necessary in ensuring your business doesn’t face legal and financial risk.
Choosing the right e-commerce accounting software
With expense, inventory, and geographic tax obligations to contend with, e-commerce accounting can be challenging, even if you’ve hired an in-house accountant. Fortunately, numerous accounting software tools are available, providing financial management and accounting solutions such as expense tracking, balance sheet management, and integrations with third-party tools like Shopify, Amazon, and Plaid.
When searching for software to support your business, consider the available e-commerce platform integrations, automation and AI, reporting, and tracking features. Slash is an example of financial software that enables you to automate your accounting through integrations with third-party suites, crypto payments,³ banking and bank accounts, and accounting tools for your business. Here’s a breakdown of accounting software that can help your e-commerce business:
QuickBooks
QuickBooks and QuickBooks Online are popular accounting software solutions, providing a comprehensive view of your financial reports, including balance sheets, income statements, profit and loss statements, expense tracking, invoice and receipt tools, and even inventory management. Slash integrates with QuickBooks, so you can access all of its helpful accounting software tools while also getting access to Slash’s banking platform, which includes cash and savings account support, global real-time payments, and cashback on your card spend.²
Xero
Xero is another popular accounting software with numerous integrations with other financial software tools. Slash integrates with Xero, allowing Slash users to access its features and integrations through Slash’s dashboard, where they can also manage their other tools, including business banking, treasury, crypto, and global payments.
Zoho Books
Zoho Books is an accounting software integrated with other Zoho products, including sales, marketing, and commerce tools. Zoho Books offers access to numerous capabilities; however, it may be more challenging to work with third parties, such as Slash, compared to competitors.
Streamline your e-commerce finances with Slash
Your e-commerce business has unique financial needs. From digital payments that often span multiple borders to extensive inventory management, expense tracking, and intricate tax obligations, e-commerce accounting is a complex process that requires knowledgeable and experienced accounting teams with comprehensive support.
Slash is specially designed to provide support for e-commerce businesses. Featuring specific vertical tools tailored to meet your business's actual financial management needs and accurate tax filing, Slash is powering some of the biggest names in e-commerce right now.
Easily apply for a Slash account today and gain access to accounting integration with QuickBooks, QuickBooks Online, and Xero, alongside an all-in-one dashboard for business banking, expense tracking, financial management, stablecoin payments, and more. Slash also integrates with Plaid, letting you sync your Shopify, Amazon, PayPal, or other bank accounts with Slash’s features. Learn more on how your e-commerce business can account and finance better with Slash at slash.com/industries/ecommerce.
Frequently asked questions
How to set up e-commerce accounting?
Set up e-commerce accounting by keeping track of your cash flow through cash flow statements, conducting inventory management, and maintaining accurate balance sheets and bookkeeping. Software tools like QuickBooks Online and Xero can help you with e-commerce accounting. Slash integrates with both tools, providing direct sync access between accounting, business bank accounts, and other financial statements and transaction data.
Why finance with Slash?
Slash is a financial technology company that provides access to all your finances, accounting, banking support, cryptocurrency, and more in one dashboard. You can access financial statements, bank statements, track online payments, and business expenses. With integrations to QuickBooks and Xero, you can easily sync with familiar accounting tools.
What is the difference between e-commerce bookkeeping and accounting?
Bookkeeping and accounting can be similar; however, accounting is often more high-level, involving proper sales tax and tax return filing, as well as cash flow management.
¹ Slash Financial, Inc. is a financial technology company and is not a bank. Banking services provided by Column N.A., Member FDIC.
² The Slash Platinum Card is a Visa® charge card issued by Column N.A., pursuant to a license from Visa U.S.A. Approval is subject to eligibility. Payment of account balance is due in full daily. Monthly membership fees may apply. Card purchases may be eligible for cashback, see https://www.joinslash.com/legal/cashback-terms for more information.
³ Cryptocurrency conversion, transfer, and custody services are provided by Bridge, not by Column, N.A. or Slash. Cryptocurrency is not custodied by any bank, is not FDIC-insured, may fluctuate in value, and is subject to loss. Terms and conditions apply; see https://www.slash.com/legal/global-usd-terms.