How to Choose the Right E-commerce Accounting Software for Your Store?

Running an online store is exciting but keeping track of your finances can be challenging. Accounting for e-commerce businesses requires precision and the right tools to track sales, expenses, taxes, and inventory.

This is where e-commerce accounting software comes into play. Choosing the best accounting software for your store can help streamline financial management and ensure compliance with tax regulations.

This guide will explain everything you need to know about e-commerce accounting and how to select the best software for small business accounting.

What is E-commerce Accounting?

E-commerce accounting is the process of tracking, organizing, and managing financial transactions for an online business. It helps companies keep records of income and expenses, making it easier to manage finances and file taxes.

Some key components of e-commerce accounting include –

• Purchase Order – A document from a buyer requesting specific products or services at a set price. It is not a payment but includes payment details.
  
• Sales Order – A document from the seller confirming the details of a sale, including product details, quantity, price, payment, and delivery information.
  
• Accounts Payable & Receivable – Accounts payable refers to unpaid bills, while accounts receivable is money owed by customers.
  
• Cost of Goods Sold (COGS) – The total cost of producing and delivering a product, including shipping and storage but excluding marketing and office expenses.
  
• E-commerce Sales Tax – A tax paid to the state where the buyer is located if the business has a taxable presence there.

What Does E-commerce Accounting Entail?

E-commerce accounting is essential for managing an online business. It includes three main areas:

1) Tax Management

E-commerce businesses must track and pay state and local taxes. Taxes can be tricky because rules vary by state. If a company has a significant presence in a state (sales tax nexus), it must collect and pay taxes there. A nexus can be triggered by having a physical store, warehouse, employee, or even making high sales in a state.

2) Bookkeeping

Good bookkeeping practices help businesses track income, expenses, inventory, and customer returns. Returns can be complicated, and affect sales numbers, inventory, and taxes. A proper accounting system should handle these without errors. You can learn some bookkeeping practices for Shopify here.

3) Growth Planning

Accounting helps businesses grow by analyzing profit trends, expenses, and financial opportunities. It provides reports like profit and loss statements, which allow owners to make smart decisions—such as expanding, reducing costs, or investing in marketing.

E-commerce accounting is the foundation of a successful online business!

What Do E-commerce Business Owners Need to Keep Track of?

Business accounting tracks a company’s money, inventory, and financial records. Key metrics include cash flow, gross profit, balance sheets, and profit and loss (P&L) statements.

• Cash Flow – This is the money moving in and out of your business. Managing cash flow helps cover expenses and avoid debt.
• Gross Profit – This is total revenue minus the cost of goods sold. The formula is: Gross Profit = Revenue – Cost of Goods Sold (COGS).
• Gross Margins – This shows gross profit as a percentage of revenue. The formula is: (Revenue – COGS) / Revenue. For example, if revenue is $10,000 and COGS is $4,000, gross profit is $6,000, and gross margin is 60%.
• Balance Sheet –  Lists assets (cash, inventory), liabilities (debts, wages), and shareholder equity.
• Profit & Loss Statement – This shows if your business made a profit or loss by subtracting expenses from total revenue.

Accounting Methods for E-commerce

There are two main accounting methods for online business –

1) Cash-Based Accounting

This method records revenue and expenses when cash changes hands. It’s simple and suitable for small businesses but doesn’t provide a full picture of financial health.

2) Accrual-Based Accounting

This method records revenue when a sale is made (even if payment is received later) and expenses when incurred. It provides a more accurate financial picture and is preferred for larger businesses.

Best Accounting Software for E-commerce Businesses

When looking for the best software for small business accounting, consider the following options –

1) QuickBooks Online

QuickBooks Online is a cloud-based accounting software that helps e-commerce businesses automate financial tasks. It integrates with platforms like Shopify to sync sales and payouts, reducing manual data entry.

Key Features –

• Easy Integration – Automatically imports sales and matches payouts with bank deposits.
• Smart Matching 0 Breaks down revenue, taxes, and fees from different sales channels.
• Insights & Reports – Tracks sales trends and top-selling products.
• Tax Support – Helps organize finances for smoother tax filing.

Get the QuickBooks Online Shopify Connector app for seamless accounting.

2) Xero

Xero is a cloud accounting tool designed for small and medium businesses. It offers advanced money management, budgeting, and bookkeeping features.

Key Features –

• 800+ Integrations – Connects with Shopify, Stripe, and more.
• Unlimited Users – Add multiple users with different account controls.
• Invoicing & Quotes – Custom templates, automatic reminders, and recurring invoices.
• Expense Tracking – Syncs with bank accounts, categorizes expenses, and remembers past transactions.

Xero provides a powerful, flexible solution for e-commerce accounting.

3) Zoho Books

Zoho Books is an easy-to-use accounting tool that helps businesses manage finances in one place. It lets you track bills, send invoices, reconcile bank statements, and control expenses securely.

Key features include –

• Import – Easily bring in and organize existing data.
• Customization – Personalize sales and purchase templates to match your brand.
• Automation – Save time with automated workflows for emails, task updates, and alerts.
• Document Management – Store and attach receipts, invoices, and other files. You can also email documents directly. Zoho Books will categorize them automatically.

This makes bookkeeping simple and efficient for businesses of all sizes.

4) Sage Business Cloud Accounting

Sage accounting software is a great choice for Shopify store owners, especially because of its instant invoice reporting feature. This helps businesses track unpaid bills quickly without searching through long records.

Designed for small businesses, Sage is easy to use offering powerful tools. Ensuring that all transactions are automatically recorded, it integrates smoothly with Shopify. This keeps financial records accurate and up to date.

With Sage, managing your store’s finances becomes simple and efficient, allowing you to focus on growing your business without spending too much time on bookkeeping.

How to Choose the Right E-commerce Accounting Software?

Picking the right accounting software for your online store is important. Here are key factors to consider –

• Integrations – Choose software that syncs with your e-commerce platform to automate data transfer, track inventory, and simplify taxes.
• Scalability – Your needs will grow over time. Pick a tool with flexible pricing plans that you can upgrade as needed.
• Features –  Save time by looking for invoicing, expense tracking, sales tax calculation, payroll, and multi-currency support.
• Ease of Use – The software should have a simple, user-friendly interface so you and your team can use it without hassle.
• Customer Support – Reliable support is essential. Look for live chat, phone support, and a helpful knowledge base.
• Security – Protect your financial data with encryption, two-factor authentication, and regular backups.
• Reviews – Read feedback from other e-commerce businesses on sites like G2 or Shopify’s App Store.

Try a free trial before committing to ensure it meets your needs.

Essential Accounting Tips for E-commerce Stores

Accounting rules vary by country and state, so staying informed is important. Even if you’re not an expert, following these simple practices can help to keep your online store financially stable.

1. Keep Accurate Records – Track all sales, expenses, and income to understand your financial health.
2. Automate Tasks – Use accounting software to track sales, calculate taxes, and send invoices to save time and reduce errors.
3. Use E-commerce Accounting Software – Efficiently manage sales, inventory, and expenses by choosing software that integrates with your store.
4. Reconcile Accounts Regularly – Compare financial records with bank statements to catch errors early.
5. Monitor Inventory – Know what’s in stock and what’s selling to manage inventory effectively.
6. Track Cash Flow – Ensure more money is coming in than going out to keep your business stable.
7. Understand Sales Tax – Learn the tax rules for different locations and collect the correct amount.

These steps help maintain smooth financial operations for your e-commerce business.

Summary

Choosing the right e-commerce accounting software is crucial for managing your online store’s finances efficiently. Whether you need a basic solution for bookkeeping or advanced inventory tools and tax management, options like QuickBooks, Xero, and Sage offer tailored features for different business needs.

Prioritize integration, automation, scalability, and tax compliance when selecting the best accounting software for small business use. Streamline your accounting for online business and focus on growing your store successfully by following best practices and using the correct software.

Fully Accountable experts for accounting and strategic CFO services are available to educate you on the services available.

Frequently Asked Questions