If you’re trying to upgrade your eCommerce accounting, you’ll need to learn about a Chart of Accounts (COA). While you don’t have to be a CPA to understand the concept and use it to make better decisions for your business, a COA will often serve as the backbone of your accounting processes. Surprisingly, many entrepreneurs are not well-versed in COAs or how they work in the context of an eCommerce store.If you’re trying to upgrade your eCommerce accounting, you’ll need to learn about a Chart of Accounts (COA). While you don’t have to be a CPA to understand the concept and use it to make better decisions for your business, a COA will often serve as the backbone of your accounting processes. Surprisingly, many entrepreneurs are not well-versed in COAs or how they work in the context of an eCommerce store.
And if you’re relatively new to eCommerce accounting, you may have a lot of questions about COAs and how to use them. For instance, what is a Chart of Accounts? What kind of information is needed to craft one? How can it help your business? How do eCommerce COAs differ from COAs for traditional brick-and-mortar businesses? Finally, where can you get software to help create a Chart of Accounts even faster?
In today’s guide, we will answer all of these questions and more, but first, let’s examine the basics of a COA to better understand how it works:
A Chart of Accounts is essentially just a list of items, or categories of items, that a business has either spent money on or received money from during a given period. While it may look relatively standard on paper, a Chart of Accounts forms the basis of a business ledger, as well as most other financial statements. A COA is so useful because it helps organize financial data into specific categories (i.e. accounts) and helps track where money is going and where money is coming from.
Organization is a key element of a COA, which is why most COAs utilize a code system that assigns a specific code to each account, in addition to the name and even a brief description of the account. Using his kind of system can make it easier to compare statements across different accounting periods.
Though each business will have unique financial accounts, here are some of the most common categories that you can expect to see on a COA:
● Assets - This category will include all items or accounts that your business owns. These could include a wide range of things, from Accounts Receivable to physical inventory.
● Liabilities - These are all of the financial obligations of your business. Typically, this will include any funds that you are required to pay out to others.
● Equity - Equity is the ownership of the company, which may include things like stocks and retained earnings.
● Income - Naturally, income is a rather broad category that includes all sources of revenue for your company. In the context of an eCommerce business, this most often refers to direct sales made through your selling channels.
● Expenses - This category includes all of the funds paid to operate your business. Usually, COAs exclude the cost of acquiring or manufacturing products for this category.
● COGS - The Cost of Goods Sold refers to all of the costs required to make or acquire your product(s).
It’s important to note that your Chart of Accounts can be as general or as detailed as needed for your business. Often, a more detailed COA can help you better understand the financial nuances of your business, but it will also require more time to create and update. Alternatively, a generalized COA will help you understand the broad financial underpinnings of your business, even if it does not give you a lot of in-depth information.
Naturally, the kind of categories and sub-categories included in an eCommerce COA will vary from what you might see in a brick-and-mortar COA. Some of the most common differences include the types of operational costs. For example, an eCommerce Chart of Accounts might have an entire category and multiple sub-categories for things like website design, hosting, and ongoing web development. Similarly, many brick-and-mortar businesses don’t have to deal with shipping or drop shipping costs, but these are standard expenses that must be included in an eCommerce COA.
When looking at individual selling channels, you’ll also need to account for various fees. Each selling channel will often have its own fees related to shipping, fulfillment, listing, transactions, and even refunds. If you sell across multiple channels, you’ll have to organize your COA in a way that accounts for all of these different expenses.
In the sections below, we’ll go over some of the specific line items you will need to consider when accounting for different selling channels and eCommerce platforms:
Since Amazon FBA handles inventory storage, order fulfillment, and even customer service, there are a number of FBA fees that will need to be included in your Chart of Accounts. In addition to storage and fulfillment fees, there are also referral fees for each sale, as well as potential fees related to the removal of inventory from Amazon warehouses. If you advertise through Amazon, you’ll also need to consider the cost of your marketing campaigns.
Shopify charges specific fees on direct sales, as well as operational costs for using the platform. You will have to add the Shopify monthly subscription fee, transaction fees, and the costs of any third-party apps to your COA. You should also remember to have a distinct COA category for Shopify chargebacks and refunds.
eBay has some pretty unique fee structures and seller costs compared to most other channels. When crafting a COA for an eBay store, you’ll need to account for listing fees, final value fees, as well as any promotional fees (assuming that you’re marketing your products through eBay). If you use eBay’s Global Shipping Program, there will be additional costs and categories to add to your Cost of Accounts.
Walmart also has a unique fee structure that will need to be delineated in your Chart of Accounts. Your referral fees can vary by category of products, which means that you may have no choice but to go into great detail concerning the categories and sub-categories of referral fees. You will also need to consider Walmart’s fulfillment fees, assuming that you rely on Walmart to handle all of your storage and shipping needs. And like most other platforms, you’ll need to account for any advertising costs and return fees you accrue through Walmart.
Are you in need of an easier way to manage your eCommerce accounting? Do you want comprehensive reports that work as extensions to your Chart of Accounts? Moreover, do you want a simple way to craft your own Chart of Accounts and update it as needed? If so, you should consider ConnectBooks as your one-click solution.
With ConnectBooks, you can automatically sync and reconcile your data (including a Chart of Accounts) to QuickBooks. This way, there’s no manual data entry. You can simply depend on ConnectBooks to sync your financial data and organize it in a way that gets the most out of your eCommerce COA. In short, if you want to make creating and managing your Chart of Accounts and financial statements even easier, you can’t go wrong with ConnectBooks!
Do you want to learn more about the Chart of Accounts for eCommerce businesses? If so, reach out to the experts at ConnectBooks today!