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How to Record Accounting Overpayments as an Ecommerce Merchant
In accounting, overpayments will sometimes pop up for various reasons, such as mismatching invoices, payment mistakes, and intentional advances or deposits. Identifying and figuring out how to record overpayments quickly to sort out any confusion is important for an accountant. What Is an Overpayment? An overpayment occurs when an invoice (or some other requested payment) is settled over the outstanding amount. For example, when the invoiced amount is $100, but $200 is paid. It’s important to note that overpayments in accounting are not always mistakes and may be intentional. Sometimes, such an overpayment is made to pay several invoices in advance, especially if the payment is international and carries high fees. What Should You Do About Overpayments? The first step is to contact the payer and let them know about the situation if they haven’t contacted you about it already. If this overpayment is intentional, an agreement must be reached on where the excess amount will be applied. However, as a startup business or ecommerce merchant—such as a Shopify seller—it's safe to assume that the overpayment you received for a single low-cost item wasn't intentional. If the overpayment was accidental, you must consider your options. To record an overpayment, there are usually two paths of action: you can hold the excess amount as credit for a future invoice (if your customer agrees), or process the overpaid amount as an individual refund. You can also combine the overpayment with another refund to eliminate any unnecessary payments or fees. In all of these situations, be sure to clearly record and communicate the overpayment and subsequent solution during your bookkeeping to eliminate any confusion. If not, you run the risk of raising suspicion about the integrity of your company's accounting methods, which could hurt your standing with the volatile ecommerce customer base and open you up to potential tax issues. As such, it's essential to use the right accounting software.
Asked 3 months ago
Do You Need Accounting Software as an Ecommerce Startup?
Accounting software is a must-have tool in any business, including small ecommerce stores. Without these programs, many private enterprises might have many hiccups since the owner cannot memorize everything and crunch the numbers in their head. So, let's explore more about accounting software. What Accounting Software Can Do for Your Ecommerce Store Indeed, accounting software has dramatically evolved since the floppy disk in the 1990s. Many accounting programs, have morphed into mobile apps, allowing entrepreneurs to insert data and share numbers on the go. Still, whether they are installed on a desktop computer or downloaded on a tablet, accounting software can still perform critical functions. Here are just a few: Simplify the data entry processOrganize, sort, and manage pertinent dataProduce reportsCreate document templatesTrack all finances Ultimately, by maintaining an accounting protocol, you can ensure that you can keep tabs on the state of your company's financial health. And, if that is not enough, you must know that your competitors are doing the same thing, so you should consider it as a competitive advantage. Which Accounting Software Should You Get? The marketplace has come up with a broad array of accounting programs to improve the dollars and cents of your company, such as QuickBooks and Xero, but there are several things you need to look for first before choosing: Tax preparedness Nearly all accounting software provides users with tax documents to prepare them for the hardest time of the year. Payment You want to make sure that your customers can pay you with an easy and simple process. So, be sure to find a program that maintains payment gateways or integrates well with popular ecommerce payment gateways like PayPal and Stripe.Pricing Finally, the market is rife with both free and paid accounting programs. You will want to balance the cost and features—but never skimp on the price and risk inadequate software because accounting is critical.
Asked 3 months ago
Can Accounting Be Automated for Ecommerce Businesses?
Accounting automation is the concept of utilizing reliable computer software to assist with the essential processes of tracking financial data, managing financial reports, aiding with business taxes, and more. Accounting Functions That Can Be Automated Automated systems can benefit small businesses by automating the following processes: Invoicing and paymentsIncome and expensesPayrollsForecastingReportingTax compliance Benefits of Accounting Automation for Small Ecommerce Businesses This technology of computerized or automated accounting software is a very crucial part of the accounting process, especially for small ecommerce stores. Accuracy is a very integral principle in accounting and these automated accounting systems are able to detect errors easier than the average human being. Additionally, most ecommerce merchants are single-person business owners that can't afford the likes of an accounting team; instead opting for accounting and bookkeeping services like QuickBooks or Xero. It can take an exceptional amount of wasted time to get this process right with manual inputting. Automated accounting would, therefore, benefit the average business owner who is not as informed about accounting in general as this system would enable accuracy and efficiency. In essence, errors in the accounting system can be costly to a small-business owner. Most Shopify and WooCommerce merchants cannot afford to run their accounting tasks on their own, and automated systems can complete the brunt of the task without the need for an accounting team.
Asked 3 months ago
Why You Need Cash Flow Forecasting for Your Ecommerce Business
A cash flow forecast is an estimate of future cash flow based on historical, current, and expected future income and expenses. In its simplest form, a cash flow forecast is the cash received minus the cash spent in a certain known time period transposed over a future time period. This selected period and its various cash events must be relevant and comparable to the future time period, called a time horizon. In ecommerce, effective use of cash flow forecasts can boost your business and improve your understanding of what's happening under the hood. The Benefits of Cash Flow Forecasting for Ecommerce Forecasting your income and expenses based on historical data and expected future data is an important tool for any ecommerce business. Its most important use is in decision-making, allowing you to have a top-down view of how much cash you will have in hand to invest in various areas, such as new product lines. Although a cash flow forecast is essential to all ecommerce businesses, it is even more so for smaller stores such as Shopify entrepreneurs with limited products and sales each month. Not having a cash flow forecast can result in a loss if the cash flow cannot keep up with expenditure. More in-depth cash flow forecasts reveal where cash is tied up for too long and can potentially be freed up. Are There Risks to Cash Flow Forecasting? It's important to note that cash flow isn't the same as profit. Your ecommerce store may make a significant profit, but have a low or slow cash flow, and vice-versa. As such, it's important to identify where cash flow forecasting will work for the business' specific use case and where it's limited. For example, cash flow forecasting cannot predict unexpected changes in the market, contract changes, price changes, sales figures, and other unknown future events. It's important to use cash flow forecasts in conjunction with other forecast tools for maximum efficacy, as well as proper bookkeeping practice to ensure that your financial records are accurate.
Asked 3 months ago
Are Owner’s Draws Taxable for Small Ecommerce Businesses?
An owner's draw is a withdrawal of assets from the business for personal use. Assets can be in the form of cash, furniture, fixtures, or inventory. Most often, owners take draws in the form of cash, either as a salary or as a return on their investment. A business's structure determines whether the owner(s) can take draws. Owners of sole proprietorships, partnerships, and limited liability companies (LLCs) can take owner's draws, whereas owners of s-corps and corporations cannot take an owner's draw. Owner's draws are not separately taxable for the business or the individual. The withdrawal of assets is merely a transfer from the business to the owner. How Owner’s Draws Affect Taxes The amount a small business owner withdraws from their business does not affect their taxes due. Instead, taxes are calculated based on the profit or net income of the business. Sole proprietorships, partnerships, and LLCs are considered pass-through entities—essentially, the profits reported by the business entity are passed through to the individual(s) who own(s) the business. The business owner then reports their share of profit on their individual tax return. The amount of profit reported is determined by subtracting expenses from income. An owner's draw is not considered income or an expense for the business, so it does not increase or decrease the profits reported. Since an owner's draw does not change the business's net income, it doesn't affect the amount of taxes owed. A small ecommerce business owner may be subject to self-employment tax and/or be required to pay estimated taxes, depending on their specific tax situation. It is always advisable to contact your tax professional to determine what taxes you may be required to pay.
Asked 3 months ago
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