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hey guys welcome to this video on learning e-commerce accounting by the end of this video you're going to understand those unique challenges that e-commerce companies face with their accounting and you'll know where you're probably making mistakes so that you can dive in deeper and start to get those better numbers real quick if you haven't subscribed to our channel please do so now for more of the best ecommerce accounting advice from our gurus here at ledger gurus we help small and medium-sized ecommerce businesses with their accounting we find that a lot of small business owners or their bookkeepers don't understand e-commerce accounting it leads to really poor financial data so really poor accounting leads to poor making which can lead to business mediocrity or even failure so we truly believe that e-commerce accounting is a huge piece of success for e-commerce businesses so let's dive into the main differences between e-commerce accounting and typical accounting the four main differences you need to be aware of within e-commerce accounting are number one where to find your financial data number two how to handle cogs and inventory accounting number three sales tax compliance big pain and number four oh yeah foreign transaction fees so number one where to find your financial data for a typical business when they do their bookkeeping most of their financial transactions are found in their bank account but with e-commerce accounting things get really messy you have financial data in your sales channels and your payment processors and if you have multiple sales channels and payment processors it's a pain to gather all that information into one place so usually you get a net deposit from your sales channel or payment processor in your bank account this is a net deposit and it does not reflect accurate revenue so let's dive into this a little further so let's say you see a deposit in your bank account from amazon for fifty thousand dollars this deposit was likely likely included sales minus shipping cost minus uh fba fees minus gift card credit plus maybe any sales tax that you collected from customers and then it resulted in fifty thousand dollars that amazon deposited in your bank account this is not your sales number when you dive into amazon you'll likely find and i'm going to keep these numbers simple but you'll likely find you had something more like 150 000 in cells minus 25 000 in gift card credit minus 25 000 and shipping fees minus twenty five thousand dollars in uh fba fees okay so if you're going to record uh this number in quickbooks that you see in your bank account you're misstating revenue and sometimes this can be by a large difference now why does this matter this is going to affect your your gross profit margin which you make a lot of decisions off of also when you go to sell your company let's say you're looking at a revenue or a multiple of of your revenue recording recording the sales accurately is going to make a big difference in the value of your company at that point so this this is really important in understanding that where you find your financial data with ecommerce accounting is not in your bank account you need to dive through your sales channels through your payment processors processors and tie all that data up with what shows up in your bank account as you record that in quickbooks online or xero so now this this can seem like a daunting task uh to dive through all these sales channels and payment processors but there are a lot of there's some tools out there that we really like one of them is a to x it's a great tool we use that takes your all your financial data from amazon or shopify and you can set it up so it transfers that into your accounting software so i'll include a link to a video up here on atex accounting and another link on recording your amazon sales you can also find that down below in the description so once again the first main difference you need to understand with ecommerce accounting is that you find your financial data not just in your bank account but in your sales channels and payment processors okay moving on to number two understanding how to calculate and record cogs in inventory the most common mistake we see with e-commerce businesses is that when they purchase their inventory they expense all of that purchase as cost of goods sold so let's say they buy a bunch of inventory in january you'll see a huge cost of goods sold in january then in february march april you won't see cost of goods sold now the issue with this method is that you you won't get a good understanding of the percentage of your cost of goods sold to sales your cogs should move about the same in relation to cells as your sales increases cost of goods sold should increase and and the opposite so this is super important because sales minus cost of goods sold equals your gross profit margin and and understanding and having an accurate gross profit margin as an e-commerce business is super important because you're going to base all your other decisions off of what your gross profit margin is that's how much money you have left to spend on everything else in your business so getting your sales accurate by finding your financial data in the right place and then getting your cogs accurate will give you that gross profit margin that you need so how do you re accurately record your cost of goods sold well for each of your product skus you should calculate a cogs for that product or the cost of that product i'm not going to dive into how to do that in this video i'll include a link up above and down below on calculating and recording cogs but you'll have a product cost for each of your skus and however many many of that sku you sell in a month that's your cost of goods sold for that sku in that month so we recommend that you tie this out at the end of each month so that on a monthly basis you have a good understanding of your cogs and therefore your gross profit margin now when you expense out your cogs as you sell product you also decrease your inventory amount and your inventory value should be you know the the cost that you've calculated for each product sku times however many you have on hand that's the value of your inventory and that decreases as you get rid of inventory or sell that product that's a basic understanding of you know the basics of cogs and inventory but like i said i'll include some links down below and up above here that will give you more details on how to do that accurately all right so the third unique aspect of e-commerce accounting that you need to understand is sales tax complaints sales tax compliance is messy there's so many different laws and it differs by state so it's difficult to keep track of where you need to be collecting sales tax and remitting that sales tax so all i'm going to say is that this is something you need to be aware of you'll have to dive in deeper to understand all the laws as you start out as a small business typically you'll only need to collect and remit sales tax for sales in the state where your business is located or wherever your inventory is held including amazon fba but for sales on amazon amazon is collecting for most of its sellers it's collecting and remitting sales tax in most states i think there's a few left few states left where you actually need to collect and remit sales tax for amazon sells but if you sell on other sales channels and you're required to collect and remit in in certain states then you'll need to be doing that on your other sales channels and like i said each state has differing laws and there's different laws that require you to collect sales tax in states so it gets really messy we have a really good video on e-commerce sales tax that you can watch and i'm going to include some links down below on like pdf downloads that we have that take you through the steps you need to do for sales tax compliance so if you if you aren't tracking you know your sales tax liabilities an important step is to diving in and understanding this in in greater detail let us know if you have any questions down below on sales tax compliance and we will send you to the right resources the fourth and final difference with e-commerce accounting that i'm going to cover today is foreign transaction fees e-commerce companies in general have to deal with more foreign transactions and the associated fees than other businesses and it's super important to understand what these fees are and different tools that are out there so experienced ecommerce accountants will be able to point you to the right tools for your business so that you can decrease these fees some include veeam pluto bill.com so we we've got a veeam payments video that you can watch i'll include that link up here and down below but understanding that this is a issue that e-commerce businesses need to face and trying to reduce these fees is something important that we've seen as as accountants for e-commerce businesses so that wraps up the main differences of e-commerce accounting that we wanted to cover if you like this video make sure and like below and subscribe to our youtube channel also we have on our website we have a pdf uh with the five most common mistakes that we see with e-commerce accounting that link will be down below that you can you can download that pdf and it will help you check your book so that you can get on the right track please if you have any questions comment below we'll answer your questions directly and we can point you to more resources that we have if you need help with your ecommerce accounting we typically start to help businesses once they are over 500 000 or million dollars in annual sales and they're growing um this is when it makes sense to get the special specialized ecommerce accounting services that we offer so don't hesitate to reach out if you if you need help and best of luck in your e-commerce accounting and growing your ecommerce business we wish you the best and and that's a wrap