Guide to Your Ecommerce Chart of Accounts - Your Profit & Loss Statement
Your how-to guide to get the best chart of accounts for your ecommerce P&L, including best practices and sample accounts.
The world of ecommerce has changed so many things about the way business is done. Unfortunately, many people don't apply those same changes to their ecommerce bookkeeping.
Accounting for your ecommerce business is not the same as other businesses. It's just not. Isn't it about time your financials caught up with your modern-day business?
We'll walk you through the best practices to get you the best ecommerce chart of accounts for your brand. Consider this your 'how-to' guide for setting up your ecommerce profit & loss statement.
We'll cover the balance sheet in another post...stay tuned :)
Why does the chart of accounts (CoA) matter?
The structure of your CoA shapes how you view and think about your finances.
A well defined CoA improves your ability to monitor and analyze financial performance of your business and directly impacts your decision-making process.
How do you create a well-defined CoA? Make it ecommerce-specific. Here's how:
- The one-size-fits-all list of accounts does not, in fact, fit all. Spoiler alert: the standard CoAs, such as the Quickbooks chart of accounts, is not created with today's ecommerce business in mind.
- Breakdown your sales channel deposits. Deposits you receive from Shopify or Amazon, are not your income. Your chart of accounts should include a breakdown of your sales and merchant fees data directly from your sales channels and payment processors. For example:
$200 from Shopify isn’t $200 of income. It’s:
$275 of income
$65 of returns
$10 of processing fees
$15 sales tax owed
- Shipping-out costs and merchant fees should be treated as COGS (not operating expenses). Brick & mortar stores treat processing fees and shipping costs to customers as operating expenses since they don’t need these expenses in order to sell their products. Ecommerce doesn’t work the same way and has different rules to consider.
- Ecommerce financing options may be different than traditional loans. Revenue-based financing / merchant cash advances are very common amongst ecommerce businesses but have different tax and book implications than a traditional loan. Treating your Shopify Capital financing the same way as a loan from a bank or from Grandpa Joe could result in inaccurate books.
- Sales tax is 50 times as complicated. When you sell online, you can sell anywhere. This makes sales tax exponentially more complicated. Make sure you are tracking this correctly and complying with the laws in all the states in the US of A.
What Chart of Accounts should I use for my ecommerce company?
When it comes to ecommerce, we, at Finaloop, have seen it all - from the Shopify or Amazon seller that grosses $25mm a year to an eBay or Etsy seller that sells $10k a year as a side hustle.
For ecommerce of all shapes and sizes, we created our chart of accounts based on the tax and bookkeeping knowledge of our team of experts and the requests, questions, and information shared with us from our customers like you.
Our CoA has more than 500 accounts to give you real data insights into your business. We won't include all 500 accounts here (you're welcome) but we will show you the key accounts and breakdowns we use for our customers.
Your ecommerce Profit & Loss statement
Sales should include your gross sales amount for each of your various income sources.
Finaloop integrates and syncs directly with many sales apps like Shopify, Amazon, Walmart, eBay, Stripe, Shop Pay, Paypal, etc. in order to pull in the data real-time and map it to your P&L accounts.
It’s highly recommended to use an app that integrates with your sales channels to break down this data without a significant amount of manual work on your side.
Let's say you sell your organic quinoa snacks in your branded store on Shopify, Amazon, as well as wholesale to Wholefoods. Here is an example of how your net sales in your P&L should look:
2. Cost of goods sold (COGS)
There are different ways to track your COGS depending on whether you track it based on the cash basis where all of your inventory purchases during the month are recorded as COGS or accrual basis where you record your COGS based on the cost of the actual units sold.
Here you can learn more about the fundamentals of accounting for inventory.
COGS for ecommerce should also include shipping-out costs to ship your product to customers and merchant transaction fees that you get charged per transaction. Here is a sample COGS breakdown from a ecommerce P&L:
3. Operating expenses
The key to breaking down your expenses is including enough detail to give you data and insights you need to properly manage your business but not too much detail that it becomes impractical and inefficient to manage.
Here is an example of how we breakdown the operating expenses for our customers.
There are many different potential accounts and not every account applies to every company, so every P&L should look a bit different depending on the needs of your business.
4. Other income and expenses
Not all income and expenses are part of your regular operating expenses. Here is an example of some accounts that should be included in a separate section of your P&L:
5. Interest and Taxes
Last but not least, here is a sample of how the interest and taxes section of your P&L should look:
The bottom line
Setting up the right chart of accounts for your ecommerce business creates an opportunity to get real value from your financials.
If your looking to get your financials custom tailored to your ecommerce business, see if Finaloop can help.
We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.
*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*
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