E-commerce accounting could be difficult for someone just starting. It is vastly different from the usual bookkeeping practices that traditional stores commonly use. Nevertheless, it is vital to learn about the basics now than be confused about it later on.

Distinguishing Accrual Accounting from Cash Accounting

Cash Accounting is the fundamental form of accounting—Money coming in is deemed income while the money that’s going out is deemed expense. Accrual accounting, on the other hand, is a bit more complicated. Instead of simply tracking the cash flow when the payment occurs, it tracks the cash flow when the transaction happens. This principle is different from a fund accounting system which tracks resources whose usage has been constrained by a donor, grant authority, governing body, other people or organizations, or by the law.

Cash Flow Report

One essential performance indicator is the cash flow of a business. Unfortunately, only a few e-commerce platforms distribute sales proceeds daily. Most platforms provide cash flow reports every few weeks or days. Most entrepreneurs include these reports with the technology that assists them in visualizing the analytics in real-time.

Sales Tax

Understanding the fundamentals of sales tax could be a massive boost for every business. As sales tax remains ever-changing and differs from location to location, knowing the fundamentals will help business owners be prepared for any change. This lowers the risk that a business has to face when it comes to tax requirements.

Profit and Loss Reports

Profit and Loss reports present a glimpse of one’s business’s performance within a specific period by summarizing the income and expenses. Others refer to this report as earnings or income statements. This report includes the business’ profits, operating expenses, and even gross margins.

Balance Sheets

Keeping a record is essential for every business—whether it is just starting or has been in the industry for a long time. It can help with the assessment of your business’s overall performance and growth. A balance sheet includes a report on the equity, assets, and liabilities. In other words, it helps see the bigger picture so that business owners can plan on what’s the next best step for their business.

Applying these Principles in Real Life

Applying these principles in real life helps secure your business in the long run and will result in a more profitable business. By understanding the basics and a bit of cost accounting, you are already on your way towards a better and wiser business.

Next Read: Understanding the Accounting Cycle