The ultimate guide to bookkeeping for e-commerce

Your books are the cornerstone of your business. If you find yourself in the red, or you don’t know how many outstanding invoices you have, you could end up in trouble.

Bookkeeping for e-commerce businesses is its own beast. When you’re running an online store, you have to deal with product storage costs, shipping, online customer service, and other fees that brick and mortar shops may be able to dodge.

This comprehensive guide is a great place to start if you’re looking to initiate a new bookkeeping strategy. Read on to learn more about how bookkeeping for e-commerce the right way can save you money and help your organisation thrive.

How bookkeeping may help you get a better tax return

Businesses have their own requirements for lodging reports and returns in Australia. Accurate e-commerce accounting helps you lodge on time (and avoid late lodgment penalties), and gives you everything you need to sidestep common mistakes (like omitting critical payroll details). Plus, you’ll have the records on hand to claim the deductions and credits you’re entitled to.

Depending on your business structure, size and staff, up-to-date online bookkeeping should give you the figures for obligations such as:

• Taxable income of the business
• Tax offsets and credits
• PAYG instalments and PAYG withholding
• Goods and services tax (GST) collected and GST credits, reported on your business activity statement (BAS)
• Loans between the company and its shareholders or directors
• Fringe benefits tax (FBT), if you provide fringe benefits
• Taxable payments annual report (TPAR), if you pay contractors for certain services
• Superannuation guarantee contributions for employees

Some of these are reported in your income tax return, while others (such as BAS, FBT returns and the TPAR) are separate lodgments with their own due dates. This is true whatever your business structure: sole trader, partnership, company or trust. Having accurate books is essential to lodging accurate returns. If you don’t have what you need, you may face penalties and interest charges.

For more information about what to keep throughout the year, see the ATO’s guide to record keeping for business. Most business tax records must be kept for 5 years.

How to choose a bookkeeping system

Not every e-commerce bookkeeping system is created equally. And they’re not all right for your business. Before you land on the right system of virtual bookkeeping for e-commerce, ask yourself these questions.

Can this bookkeeping system scale with my organisation?

Bookkeeping for e-commerce requires the ability to grow. Your online sales could double within a few months if the right influencer mentions your brand. As you scout online bookkeeping systems, ask yourself if the software in question will grow with you.

Some bookkeeping software plans are designed for very small businesses. Entry-level plans can limit things like the number of invoices, bills, employees or users, so as you grow they may stop working for you. Check whether you can upgrade your plan easily when the time comes, or whether you would need to move to new software.

Does this system track each transaction more than once?

You should also compare single-entry bookkeeping with double-entry bookkeeping. The single-entry method can work for very small, cash-only operations; you record each transaction once, like a cash book.

Double-entry bookkeeping is more appropriate for most businesses. This method records each transaction in at least two accounts: once as a debit and once as a credit. For instance, if you make a $100 repayment on a business loan, your cash goes down by $100 and the loan you owe goes down by $100. Total debits always equal total credits, which helps you catch errors.

If you are operating anything larger than a cash small business, you should stick with double-entry methods.

Is my financial data available when I need it with this bookkeeping method?

You should also think about accessibility. Is the bookkeeping method you’re choosing transparent? Online bookkeeping for e-commerce shouldn’t be full of gatekept information. You want a bookkeeping method that generates automated reports and is available whenever you need it. Paper methods of bookkeeping make it too easy for things to get lost and be unavailable after hours.

The difference between cash and accrual accounting

Deciding between cash and accrual accounting is another major decision to make. The method you use will inform the way you lodge your taxes, and the way you calculate your monthly sales. Bookkeeping for e-commerce businesses requires an accurate monthly view of cash flow, so choose carefully. For GST, businesses with aggregated turnover under $10 million can choose to account on a cash basis; others generally use the accruals (non-cash) basis. Your accountant can advise which suits you.

Cash basis accounting for small businesses

Cash basis accounting tracks funds only when cash exchanges hands. If a customer places an order now but pays later, you only document it once you receive the funds. With cash basis accounting:

• You have an accurate picture of cash flow. This is the primary benefit of cash basis accounting. Your books will remain aligned with cash flow reports.
• You may not have a good, comprehensive notion of your businesses’ financial health. Your cash flow might look stable while you’re ignoring a tonne of unpaid invoices.
• Cash basis accounting is generally recommended only for small operations. You will outgrow it once you have multiple vendors and customers who don’t all pay on the same schedule.

Accrual basis accounting for all businesses

Accrual basis bookkeeping is more complicated. You record income when work is complete or a sale is made, even if you haven’t been paid yet. The payoff for added complexity is that you gain a more accurate picture of your total financial picture. You track cash in hand plus expected income and costs. With accrual basis accounting:

• You can see which customers have paid and which customers have outstanding payments. If your online store offers payment instalments, accrual basis accounting is a better tracking method.
• You can predict future cash flow. Because you’re recording sales once the sale is made, even if the payment is incomplete, you can look forward and see what future income looks like.
• Tracking debts is easier. With accrual basis bookkeeping, you’ll also have a better picture of who you owe money to. You’ll track a refund once it’s requested, not just when it clears at the bank.

How to categorise transactions

Your books can never be too organised. Well, if you start separating paper purchase by colour… it may be time to take a breath. But categorising expenses in a detailed manner is usually wise. When you develop your bookkeeping for e-commerce strategies, deciding how to itemise is key.

Each business will need different expense categories based on the type of business they conduct. In e-commerce, for instance, you may not have as many merchandising expenses as an in-person retailer. You will have a more complicated shipping system instead. Categorising expenses helps you identify where you spend the most money, where you can cut back on costs, and which budgets have wiggle room for growth.

Some common expense categories for all e-commerce businesses include:

• Payroll costs: Hourly staff payments, salaries, and state payroll tax (if your total wages are above your state or territory’s threshold) would all fall under this category.
• Superannuation contributions: Employers must pay super guarantee for their employees: 12% of qualifying earnings, paid with each payday from 1 July 2026 (Payday Super). You will want a category that tracks these expenses, and your payroll software reports super to the ATO through Single Touch Payroll.
• Lease and mortgage payments: Separate financing from expenses. A $1,000 mortgage payment with $800 principal and $200 interest reduces the loan liability by $800 and records $200 interest expense, subject to any capitalisation requirement. The principal is not an expense or an ordinary tax deduction. Leases may require separate right-of-use asset and lease-liability accounting under AASB 16. Track total property cash payments separately for cash-flow planning.
• Communications bills: Internet, video conferencing, and other communications costs can really add up. You’ll also want to put mobile phone bills in this category.
• Website maintenance: As an e-commerce business, tracking the costs of your website is a no-brainer. This might include domain purchases, website copy, search engine optimisation (SEO), and graphics.
• Marketing costs: Organic traffic is great, but even major businesses pay for Google Ads, targeted social media ads, and emails. Categorising these costs into marketing helps you calculate how much you’re spending per converted customer.
• Shipping expenses: As an e-commerce business, you will likely have to ship some of your items to customers. This category can include everything from postage to packing peanuts.
• Payment processing: Whether you use eWay, SecurePay, or another third-party payment processor, you can expect to pay fees. You may also pay chargeback fees when a customer disputes a card payment; record the reversed sale and the fee separately. Tracking these fees helps you figure out when it’s time to shop for a more affordable option.
• Software and subscription costs: Software subscriptions and other monthly subscription fees should usually be categorised on their own.
• Insurance: Businesses typically have to carry multiple types of insurance. Tracking your premiums helps you identify sudden increases.

Many bookkeeping software programs make it easy to categorise expenses into categories. You may even be able to automatically sort costs into categories when they’re input.

The most important ecommerce KPIs to track

Key performance indicators (KPIs) are a way to measure your business’ successes in more tangible ways than “It seems like things are going well.” Some measurements are qualitative and others are quantitative. For instance, customer satisfaction is more difficult to put an exact figure to than the number of monthly sales. Both types of data are important.

Tracking KPIs is an important part of the financial analysis for e-commerce businesses. A bookkeeper who keeps solid records can calculate the following KPIs without a problem.

Conversion rate: This refers to how many people who visit your website make a purchase. Obviously, the higher the number, the better. Average conversion rates vary by industry, so track your own rate over time rather than chasing a generic benchmark.

Average order size: How much do people buy when they do decide to check out? Calculating how much people currently spend on a single order gives you a baseline from which to grow.

Customer loyalty: This measures whether most sales are from returning customers or new customers. You can measure this by requiring a log in to check out. The more returning customers you have, the better: loyalty can cut down on your need for advertising costs.

Number of transactions: As an e-commerce business, you’ll also want to track the total transactions for the month to make sure they are scaling in the right direction.

Cart abandonment: A customer who abandons the items in their virtual shopping cart represents an almost-sale. These are customers who nearly spent money but something changed their minds. If your rate goes up, you may want to consider targeted reminder emails.

Cost of goods sold (COGS): The direct cost of the goods you sold in the period, such as the purchase price (or the materials and direct labour to make them) plus inbound freight. Marketing, general staff salaries and other overheads are operating expenses, not COGS. Keeping COGS in check protects your gross margin.

Churn rate: When a customer stops subscribing to your services, opts out of brand emails, or otherwise abandons your brand, they are contributing to your churn rate. Watch the trend month to month and investigate any sustained rise.

Inventory level: Over time, you will figure out how much inventory is too much inventory to move in a short period of time. Find your range and create a KPI so you can flag items that aren’t moving.

Other things to consider for e-commerce bookkeeping

We can’t complete our guide without pointing out some must-know details about e-commerce bookkeeping. These three best practices can save you money, time, and strife.

1. You may not be the best bookkeeper for your e-commerce business.

As a small business owner, you may handle all of your own bookkeeping with at-home software. As you scale, that won’t cut it. And when an owner is spending their time reconciling bank accounts, they aren’t brainstorming new products or talking to investors. When you call in reinforcements, you’re able to spend more time on high-level strategy and other tasks.

2. The best bookkeeping candidate may not be an in-house candidate.

Don’t rule out off-site bookkeepers. A virtual bookkeeping team can become an invaluable partner. A virtual team isn’t limited to people who live near you, which widens your choice of people who know e-commerce. Plus, virtual teams lower your overhead costs. You’ll never have to clear out an office for a virtual bookkeeper or buy them a computer.

3. Cloud-based services are essential.

In modern bookkeeping, you should have access to your reports around the clock. Locally stored documents may only be accessible from certain servers, and paper documents are too easy to lose. When you’re shopping for a bookkeeping service, make sure your books stay in your own accounting software and you keep full access to them.

When to hire a bookkeeper for your business

Once you’re no longer a small business, it’s time to have a dedicated bookkeeper. Many e-commerce businesses bring in a bookkeeper when they start to add employees, even if they still qualify as a small operation. Hiring a bookkeeper can be worth it for tax season alone.

You may also want to hire a bookkeeper when you are in a specialised industry with a lot of complicated tax rules and licences. The expertise you need can be hard to come by when you’re pulling from a local pool of candidates.

Hiring a bookkeeper is a savvy move when you have a fully remote team, too. Your bookkeeper serves as a uniting force who tracks all the moving pieces and expenses, no matter where your staff are located.

The final word on bookkeeping for e-commerce

An e-commerce bookkeeper can help keep your bank reconciliations, monthly reports and tax-time records in order. As you grow, managing your general ledger and payroll yourself becomes a burden. Visory runs bookkeeping, payroll, accounts payable and accounts receivable for growing businesses, with a dedicated team and its AI, Delphi, overseen by that team. Visory Insights and a Business Performance Partner then help turn the numbers into decisions. See how Visory works in practice.