E-commerce Accounting Mistakes Small Business Owners Must Avoid

Discover 6 crucial e-commerce accounting mistakes small business owners must steer clear of.

The art of keeping accounting records has always been a tedious process. It is a particularly daunting task for those who don’t have experience with accounts management, and one that can quickly trigger anxiety with the constant threat of making a wrong input that could incur a sizeable penalty at tax time.

It should be noted that innocent accounting mistakes are not uncommon. It doesn't matter whether you are a small business owner that self-manages the records of all business transactions on your own, or a global brand that has employed one of the finest specialists in the industry, mistakes can and will happen during the process of accounts entries. The good news is that such mistakes can typically be identified, and there are ways to ensure that such miscalculations can be avoided altogether.

This article highlights six common e-commerce accounting mistakes that small and medium businesses can look to avoid, if the proper precautions are taken.

1) Wrong calculation of cash inflow

You must always avoid the mistake of calculating profits as income. Although it may be tempting to do so, you shouldn't do it. Instead, make use of a rigid or conservative approach. It will prevent you from overspending more than your income.

Also, always make provisions for debt repayments to your creditors and suppliers. Being extremely positive about cash flow is often overlooked and is nonetheless, still a mistake.

2) Failure to cross-check data

In the process of trying to beat a deadline, you may find yourself entering the wrong data. To prevent this from happening, be sure to cross-check all your entries to ensure that all data is free from irregular entries.

Do not rely on computer software alone. While software companies may claim their programs to be incapable of mistakes, it’s always a good idea to double-check your software entries against pen and paper entries, where possible.

3) Having an incomplete chart of accounts

To understand most of the errors associated with e-commerce accounting, you need to know how the accounts are stored. Most of the time, the chart of accountants used does not contain adequate data.

The main purpose of a chart of accounts is to give you a clear overview of your company finances. The chart of accounts relies solely on the quality of information entered into it by the user. It is only helpful to your business if the entries are correct and up to date. If used correctly, you will come to appreciate its true value where time management is concerned, and its ability to help you avoid making costly accounting mistakes.

4) Inaccurate inventory levels

Every e-commerce operator must keep constant tabs on their stock levels. There is a direct link between the cost of goods sold and stock levels. Efficient inventory management is essential to avoid any discrepancies in inventory.

Apart from theft, other factors can contribute to lost inventory or inaccurate inventory levels, such as listing product information incorrectly, mixing up data from a different product, and so on. All these problems can be prevented by closely monitoring the warehouse. Most online retailers now adopt e-commerce inventory software for controlling and micro-managing their inventory.

5) Not regularly monitoring your bookkeeping records and bank account

It is important to always double-check that the bookkeeping entries from your internal records, correctly match those of your business bank account. Doing this on a routine basis will help you quickly identify if any discrepancies before it is too late.

6) Failing to recognize the complexities of sales tax

This a broad concept that can have many interpretations. Can sales tax lead to a mistake in accounting? Yes. Does it imply that attention must be paid to every product to ascertain which one falls under tax radar and which product can be exempted? Yes. The risk of error in sales tax is very high. To avoid accidental sales tax miscalculations, ensure that you have everything taken care of in every state that your business operates in.

Conclusion

To keep your company afloat and free from the threat of unnecessary tax penalties, you must keep accurate accounting records. Doing so will help you understand your company finances.

Having accurate records will help you to plan strategically and detect mistakes before they have the chance to escalate into a significant crisis for your business. If you don't feel confident handling your accounting duties on your own, consult a certified accountant to assist you.

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