That’s why developing the best bookkeeping practices can make all the difference. Start by determining how you’ll log your inventory and whether you’ll use the FIFO, LIFO, or average cost valuation method. Then use an inventory management system to accurately track your inventory, and make sure you audit it on a regular basis. It is important to note that COGS are different from your operating expenses, which are expenditures not directly related to the production of your products. While they are both subtracted from your business’s total sales figures, they should be recorded separately. The first way of accounting for differences between shipping income and spending is to keep everything in one COGS Shipping Expense account.

• You can calculate COGS by adding the cost of your inventory to the purchases made during a specific time period.
• Running an ecommerce business is hard enough without making costly accounting mistakes.
• When it comes to dominating the e-commerce landscape, Shopify and BigCommerce are powerful platforms, but tread with caution.
• Or you could accidentally overspend on something and not have the money to cover it.
• Like any business, managing an ecommerce company comes with considerable expenses.
• It ensures accurate recording of net sales, expenses, and overall economic well-being, functioning as a guide to navigate through the complex digital business environment.

Manual or inaccurate tracking can lead to accounting mistakes, making it hard to decide where to allocate your resources. While offering different payment methods can enhance customer convenience, it’s important to note that they can complicate matters from a bookkeeping standpoint. For instance, if you receive a payment in cash or by check, the sale won’t be fully recorded in your books until you deposit that money into your bank account. E-commerce retailers must have a solid understanding of inventory and Cost of Goods Sold (COGS).

Accounting mistake: Reporting sales at random intervals

The merchant fee will vary depending on the platform you use, but it’s details like this that you need to keep in mind when using an ecommerce platform. Luckily, there’s lots of bookkeeping ecommerce bookkeeping software that integrates with ecommerce platforms, making it easier to manage your sales and expenses. The beauty of ecommerce is the wealth of platforms available to sell your products on.

Some accounting solutions even offer features that can help you forecast cash flow. Businesses should set up proper reporting schedules for their sales to avoid these accounting mistakes. https://www.bookstime.com/ If you know you won’t be able to stick to a manual posting schedule, accounting automation software can do it for you and keep you organized regardless of your sales volume.