E-commerce has revolutionised how businesses operate, with millions of transactions occurring online daily. In Australia, e-commerce is no exception, with many businesses using online platforms to reach a wider audience and streamline their sales process. With this increased volume of transactions, e-commerce businesses need to implement proper accounting processes to stay organised and ensure compliance with tax regulations. This blog post will discuss how to do e-commerce accounting in Australia.
Let’s first try understanding what e-commerce accounting is, and then we can determine how to do it.
What is E-commerce Accounting?
E-commerce accounting is managing and recording financial transactions for businesses that operate through electronic commerce. This includes tracking and reporting sales, expenses, and other financial transactions through online platforms like websites and mobile applications.
The purpose of e-commerce accounting is to accurately record financial information, calculate taxes and generate reports, and help businesses make informed decisions about their finances.
What do You Need to Kickstart E-commerce Accounting For Your Store in Australia?
To start accounting for your e-commerce store in Australia, you will need to record accurate financial data for your business. You will also need accounting software like Xero or QuickBooks, etc. In addition to these essential accounting tools, you will need two significant assets:
ABN (Australian Business Number)
An ABN is an 11-digit unique identifier for businesses in Australia and is required for many business-related activities, including invoicing and registering for Goods and Services Tax (GST).
GST registration
If your e-commerce business has a taxable turnover of $75,000 or more, you must register for GST and collect GST on sales. You will then need to regularly report and remit GST to the Australian Tax Office (ATO).
How Can You Do Proper E-commerce Accounting?
Here is a process that can help you systematically do your e-commerce accounting.
Keep Accurate Records
One of the most critical steps in accounting is to keep accurate records of all transactions. This includes invoices, receipts, and any other financial documents related to the business. Keeping correct records will make it easier for you to track income and expenses, calculate taxes, and generate reports.
Use Accounting Software
Accounting software is an effective way to automate the accounting process and ensure that all transactions are recorded accurately. Several options are available, including cloud-based solutions like Xero, QuickBooks, and MYOB, which can help you manage invoicing, payments, and expenses.
Some e-commerce platforms, such as Shopify and Magento, have built-in accounting tools to help you manage your finances.
Calculate And Pay Taxes
In Australia, e-commerce businesses are required to pay taxes on their income and goods and services tax (GST) on their sales. To ensure compliance with tax regulations, it’s essential to calculate and pay these taxes accurately.
This can be done by using accounting software or hiring an accountant to handle the process. You can also outsource your accounting needs to an external accounting agency.
Separate Business And Personal Expenses
To accurately track your business finances, a separate business and personal expenses. This includes using a different bank account for business transactions, making it easier to keep track of income and costs and generate reports.
Monitor Cash Flow
Cash flow is an essential aspect of e-commerce as it can impact the sustainability of your business. Monitoring cash flow will help you understand when money is coming in and going out and make informed decisions about your business finances.
This can be done using accounting software or creating a simple spreadsheet to track your transactions.
Generate Financial Reports
Generating financial reports is a crucial part of e-commerce accounting as it provides valuable insights into the financial performance of your business.
Reports such as income statements, balance sheets, and cash flow statements can be generated using accounting software or by an accountant. These reports can help you make informed decisions about your business and track its growth over time.
Accounting Methods For E-commerce Sellers
There are several accounting methods that e-commerce sellers can use to manage their finances. These include:
Cash Basis Accounting
This method records financial transactions only when cash is received or paid out. It’s simple but may not provide a comprehensive view of the business’s financial performance.
Accrual Accounting
This method records financial transactions when they are incurred, regardless of when payment is received or made. It provides a more accurate view of the business’s financial performance but can be more complex.
Hybrid Accounting
This method combines cash and accrual basis accounting elements and is often used by e-commerce businesses that want to track their finances in real-time.
To Sum It Up
E-commerce accounting is essential to running a successful online business in Australia. If you’re unsure about how to handle e-commerce accounting, it may be helpful to hire an accountant or seek the help of a professional accounting agency to assist you.
