E-commerce Accounting 101: Basics Every Online Seller Needs to Know

Introduction

Starting an online store is exciting, but managing finances can feel overwhelming, especially if you're not familiar with accounting. Whether you're selling on platforms like Shopee, Lazada, Tiktkok , Shopify, or on other websites, mastering the basics of e-commerce accounting is essential for staying profitable and compliant. This guide will break down everything you need to know in simple terms, helping you get started with confidence.

1. Why E-commerce Accounting is Important

Accounting is more than just numbers—it’s the backbone of your business’s financial health. Here’s why it matters:

Track Your Profitability: Understand how much money you’re actually making after deducting expenses.
Stay Tax Compliant: Proper bookkeeping ensures you file accurate taxes and avoid costly penalties.
Make Informed Business Decisions: Knowing your numbers helps you decide when to restock inventory, invest in marketing, or expand your product line.

✅ Pro Tip 1: Even if you’re just starting out, set up a basic accounting system early. It’s much easier to track finances from the beginning than to play catch-up later.

✅ Pro Tip 2: Better to request help for an accounting help to quickly get you started. Contact us to get started.

2. Key Accounting Terms You Should Know (Beginner-Friendly)

Here are some simple definitions to get you started:

Revenue: The total money earned from sales before subtracting any costs.
Expenses: Costs involved in running your business, such as shipping fees, Lazada, Shopee, Tiktok charges, rent, advertising, and others.
Profit (Net Income): What’s left after subtracting all your expenses from your revenue. Think of this as your "take-home pay."
Assets: Items of value owned by your business, like inventory or cash in your bank account.
Liabilities: Money your business owes, such as loans or unpaid bills.
Equity: The owner’s share of the business, calculated as Assets minus Liabilities.

✅ Pro Tip: Create a glossary of accounting terms and keep it handy. It will help you understand financial reports and make conversations with your accountant easier.

3. Setting Up a Simple Accounting System (Step-by-Step)

You don’t need to be an accounting expert to get started. Here’s a quick setup guide:

Step 1: Open a Dedicated Business Bank Account
- Keep your personal and business finances separate to avoid confusion and make tax filing easier.
Step 2: Choose the Right Accounting Software
- Popular options for beginners include QNE (recommended for Filipino online sellers), QuickBooks, FreshBooks, Xero, and others. These tools automate invoicing, expense tracking, and financial reporting.
- If you’re on a tight budget, consider free tools like Wave.

✅ Pro Tip 1: Many accounting software platforms offer free trials—take advantage of these to see which one fits your needs before committing. Check free trials here:

Quickbooks
Freshbooks
Xero
QNE

✅ Pro Tip 2: QNE AI Cloud Accounting is best for Filipino online sellers — whether your business is small or big — especially for those planning to apply for the Bureau of Internal Revenue (BIR) Computerized Accounting System (CAS) accreditation. Check our complete QNE DIY accounting guide for online sellers to understand this accounting software.

Step 3: Set Up a Chart of Account
- A Chart of Accounts (CoA) organizes your finances into different categories, making it easier to track income, expenses, and assets. It’s like a roadmap of where your money is coming from and where it’s going.
- Most accounting software will have a template for e-commerce businesses to get you started.
- Understand the Basics of a Chart of Accounts
- - Assets: Cash, inventory, equipment.
  - Liabilities: Loans, credit card balances, unpaid bills.
  - Equity: Owner’s investment and retained earnings.
  - Revenue: Sales from your online store.
  - Expenses: Costs like shipping fees, marketing, and website hosting
- Review & Adjust Annually:
  As your business grows, revisit your CoA to add new categories that reflect your changing needs.

✅ Pro Tip: Start simple! Focus on tracking just a few key categories to avoid feeling overwhelmed.

Step 4: Test Sample Transactions to Understand Financial Impact

Before fully diving into live transactions, it’s crucial to understand how different types of sales, expenses, and adjustments affect your financial records. By using test data, you can practice without the risk of making errors in your actual books.

Many accounting platforms offer a demo or sample company mode where you can practice without affecting your real data.

4. Tracking Your Income and Expenses

Income: Record every sale, including details like the product sold, payment method, and platform (e.g., Shopee, Shopify).
Expenses: Track all costs, from product sourcing to packaging supplies. Don’t forget about small expenses like subscription fees for tools and apps.
Automate When Possible: Link your accounting software to your e-commerce platform to automatically sync transactions.

✅ Pro Tip: Set a weekly reminder to update your books. Consistency is key to avoiding end-of-month chaos.

5. Understanding the Cost of Goods Sold (COGS)

What is COGS?: These are the direct costs of producing the goods you sell, including raw materials, shipping, and packaging.
Why It Matters: Knowing your COGS helps you price products correctly and calculate your gross profit.

✅ Pro Tip: Always include hidden costs like import taxes and custom duties in your COGS to get an accurate profit margin.

6. Managing Inventory for E-commerce

Basic Inventory Tracking: Use inventory management features in your accounting software to keep tabs on stock levels and avoid overselling.
Inventory Valuation Methods:
- FIFO (First-In, First-Out): Older stock is sold first, which is great for perishable items.
- LIFO (Last-In, First-Out): Newer stock is sold first, usually beneficial during rising costs.
- Weighted Average: The cost of all inventory is averaged, and this average cost is used for sales.

✅ Pro Tip: Consider using inventory management apps like Odoo and QNE which can streamline your process if you are handling inventories especially for large product volumes.

7. Cash Flow Management Basics

What is Cash Flow?: It’s the money flowing in and out of your business. Managing cash flow is crucial to avoid running out of money, even if your business is profitable on paper.
Cash Flow Tips:
- Track Your Receivables: Make sure customers pay on time to maintain a healthy cash flow.
- Plan for Seasonality: Set aside funds during high sales periods to cover slow months.

✅ Pro Tip: Use the "Cash Flow Forecast" feature in your accounting software to plan for future expenses and investments.

8. Common Accounting Mistakes to Avoid

Mixing Personal and Business Finances: This can complicate your taxes and make it harder to see how your business is really doing.
Not Keeping Receipts: Always save digital copies of receipts for tax deductions.
Ignoring Regular Reconciliation: Comparing your bank statements with your accounting records helps catch errors early.

✅ Pro Tip: Set a monthly reminder to reconcile your accounts. This small habit can save you from big headaches later.

9. Preparing for Tax Season

Understand Your Tax Obligations: Research the taxes applicable to your online store, especially if you’re selling internationally.
Track Deductible Expenses: Common deductions include shipping supplies, website hosting fees, and marketing costs.
Consider Hiring a Professional: If taxes stress you out, hiring an accountant can save you time and money. Contact us so we can assist you.

✅ Pro Tip: Create a digital folder to store all your tax-related documents throughout the year. This will make filing taxes much easier.

10. Essential Financial Reports for Online Sellers

Profit & Loss Statement: Shows your revenue, expenses, and profit over a specific period.
Balance Sheet: Provides a snapshot of your assets, liabilities, and equity.
Cash Flow Statement: Tracks the money coming in and going out of your business.

✅ Pro Tip: Review your financial statements at least once a quarter to spot trends and adjust your strategy.

Conclusion

Understanding the basics of e-commerce accounting can set your online store up for success. By following these simple steps, you’ll not only stay on top of your finances but also make smarter business decisions. Remember, the key is to start small, stay consistent, and keep learning as your business grows.