Accounting Articles > E-commerce Accounting:

Accounting for an e-commerce based business

This concept baffles most traditional accountants and CPAs. It also baffles most clients, believe it or not. The clients think that because it’s on the internet it should be easier. The opposite is actually true.

Because we are talking about e-commerce, our work is complicated by a factor of two or three:

1. Credit cards, PayPal accounts, or whatever is used, rather than cash or check, will always include a fee. Hence a deductible expense and more accounting work.
2. Delivery.
   They’re not walking into a store and walking out with something, if we are talking about a tangible product. There is always a fee and sometimes additional income. Hence additional accounting work.
3. Selling costs.
   You’re generally going to sell these items from someone else’s website. They always charge a fee. Where there’s a fee there’s additional accounting work and a deduction.
4. Sales Tax.
   This has become a nightmare. If you are, let’s say an Illinois retailer. You are delivering a tangible product to an address inside the State of Illinois (that is, the end-retail point) you are required to collect and remit Illinois sales tax. If you don’t collect sales tax, you better have a copy of the customer’s wholesale certificate.
5. Use Tax.
   If you are physically located inside the state of Illinois and purchase something for use in the business form outside of the State of Illinois, you should probably not pay Illinois sales tax on the item. But you are required to pay Illinois use tax.

Documentation and accounting for an e-commerce business can be much more difficult than handling a traditional accounting client. The biggest mistake that you can make is trying to do your own accounting. Just because you have a copy of Quickbooks, and are computer savvy doesn’t mean that you know anything about taxation. Please don’t confuse the ability to reconcile a checkbook with the ability to complete an income tax return that would survive an audit.

If your current accountant is not familiar with the special needs of your business, you should change accountants. Both the Internal Revenue Service and The Illinois Department of Revenue love to audit these types of business. Everything is electronic. There are always records. If you’re accounting isn’t done in the proper manner, you will not be in a position which can be defended.