Before fully engaging in an online venture, understanding bookkeeping basics is a must. Once you get your hands on the financial statements of your e-commerce business, you have better control of your finances.
To embark on the road of e-commerce is hopping into the growing trend of online business, alongside the big names in the industry such as Shopify, BigCommerce, Etsy, and Amazon.
Setting up your virtual store is only the beginning. After launching your website, the nitty-gritty follows, including managing your books.
What are the Financial Statements for E-Commerce?
The catch in overseeing your cash flow is that managing your finances is the only way to actually make more. As an e-commerce business owner, dipping your toe into bookkeeping can save you from financial stress later on.
Here are the 3 essential reports you should monitor on a regular basis to get a hold of your cash flow:
Profit & Loss /Income Statement
All your revenue, sales, and income are listed under this report. A profit and loss statement shows a summation of your net income or net loss, providing your financial status in a monthly, quarterly, or yearly report.
Income statements categorize income into operating and non-operating types. Operating income is generated from regular business activities while non-operating income comes from means not directly linked to the business activities, such as property sales, equipment sales or investment returns.
An e-commerce income statement reflects the financial outcomes of the initial decisions you made, providing an understanding on how much you have spent on past projects.
Cash Flow Statement
Cash flow statement is the most important report for an e-commerce business. It shows all your inflows and outflows in a significant period of time, while giving a clear picture of how your costs contributed to the business growth or how it became an unnecessary expenditure.
Cash flow, when managed carefully, can forecast the future movement of your finances. When this happens, you can budget accordingly for your long-term operations.
Cloud accounting software such as Xero and QuickBooks are ideal in helping e-commerce business owners monitor their numbers. Plugging their finances into a trusted accounting program builds a more accurate platform for their numbers.
A balance sheet is also an important part of accounting for an e-commerce business. This report provides an overarching view of your total assets and total liabilities. The balance sheet therefore shows the overall financial standing of your business.
List down your inventory, cash funds, accounts receivable, even including non-current and intangible assets. E-commerce assets lean more towards cash and inventory since it keeps physical contact at a minimum. Outstanding invoices and investments are also included in the sheet.
On the other hand, liabilities are the debts and money you owe for business reasons. Outstanding balances, purchases, mortgage payments and the like are included in this column.
Balancing your assets and liabilities is a must to show the total profit or loss your business incurred. In one glance, you can easily know where you stand financially.
Financial statements for e-commerce are essential in helping you grow the business. If and when you decide to scale your operations, these reports will tell you how long you can go with the current cash flow you operate with.
Read Next: Business Bookkeeping Basics: Accounting for Your E-Commerce Business
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