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All You Need to Know about Accounting for eCommerce Businesses

By November 25, 2021 No Comments

eCommerce businesses typically never set up their company for accounting purposes. For any eCommerce business to be successful, the business owner must be able to grasp the financial numbers. Without a proper accounting system, the business owner may be intimidated by the sheer volume of data.

Having a healthy cash flow is the core to a successful Small to Medium Enterprise (SME) business. By subscribing to an accounting service in Singapore, SMEs will have an edge over their competitors.

This is especially true in a highly competitive region such as Singapore. Engaging in proper accounting service in Singapore will allow the entrepreneur to focus on business’ profitability while complying with regulations. Corporate tax services in Singapore are usually in such SME accounting services Singapore package.

Types of Accounting for eCommerce Businesses

For Small to Medium Enterprise (SME) accounting services in Singapore, there are two common methods to consider before signing up with an accounting service for small businesses in Singapore.

1) Cash Accounting Basis

Cash accounting refers to a method that recognises a business’ revenue and expense at the time cash is received or paid out.

For an eCommerce business, the benefit of cash accounting service in Singapore are:
• Cash flow is maintained in real-time
• Provides small businesses in Singapore a point-in-time picture for better decision making
• Straight forward and manageable for new start-ups to maintain
The cash accounting method is advisable for small business owners in Singapore, especially companies that do not carry inventories as well as new startups. An accurate picture of the amount of cash on hand can be determined with a cash accounting package including corporate tax services in Singapore.

2) Accrual Method

The Accrual accounting method records revenue or expenses when a transaction occurs instead of when payment is received or made.

The advantage of using the accrual method for eCommerce businesses include:
• Effective for financial management and monitoring activities
• Able to plan forecast better base on highs and lows throughout the year.
• Gives companies a truer depiction of their resources and financial responsibilities
Accrual accounting service in Singapore is recommended for businesses that involve stock holdings, services rendered and companies in expansion and growth. Such companies can consider a monthly or quarterly accounting service package with corporate tax services in Singapore. It also shows a true reflection of the performance of the company and entrepreneurs can use the accounting database to make good business decisions/expansions.

Accounting Checklist

Here’s a quick glance at various documents needed for business set-up including eCommerce in Singapore:
• Accounting and Corporate Regulatory authority (ACRA) business profile – gives prospective buyers and stakeholders an introduction to the products, services and industry that the company is in.
• Minutes and meeting, resolutions – set out a company’s direction, decisions and execution plans made by the management
• Business bank account – for transparency and accuracy purpose
• Basic software such as– invoicing, payroll, accounting and stock tracking
For Small to Medium Enterprise (SME) business owners, going through all the requirements can be a formidable task. DNA Accounting will be able to provide you with advisers who have amassed lots of experience and are highly knowledgeable who will be able to walk you through every step of the process.

List of Accounting Tasks (Daily & Weekly)

Running a company is not a walk in a park; it requires constant monitoring of business operations. However, fulfilling regulations requirements are also as important. DNA Accounting will be able to provide services such as:

Daily / Weekly – Sales record tallying, expenses records

Tracking of transactions should start from the moment the company is open for business. By doing so the company will be ready for the unexpected.

Monthly – sales report, cash flow, payroll services, bank reconciliation

A clear separation of company and personal finance cannot be emphasised enough, be it borrowing from the company and paying back later or expenses paid on behalf of the company, these should all be recorded properly to avoid misunderstanding from business partners, prospective customers, regulators, or banking and loan institutions.

Payroll schedules also need to be determined to calculate the basic salary, commission and also CPF contribution of the staff on a monthly basis.

Quarterly – goods and services tax (GST) reporting, business positions forecast for next quarter

In Singapore GST are filed quarterly, regulators classify the goods into different categories, which can be tricky especially with the new regulations mention in budget 2021.

Yearly – financial statements, corporate income tax, annual general meeting, annual filing with regulators

Annual return filing should be done 30 days after the annual general meeting (AGM). Examples of documents required to be submitted are financial statements, AGM documents and also XBRL filing. These are complicated documents that should adhere to specific standards during preparation.

Adhoc – Director resolutions and shareholders resolutions are required when there are new changes to the company framework such as change of company particulars. Applying for licenses and grants are also required from time to time when required to move the company to a different platform

While these are not daily requirements, every business will face either one or two of such situations in a year-long period.

Trying to run all the requirements on an excel spreadsheet may be counterproductive since the time can be better used to plan new products or services launch. eCommerce entrepreneurs may not fully understand the regulation requirements, which end up with late filing fines and also being marked by the regulators as non-compliance. By having tailored software advice from DNA Accounting, a professional advisor will be able to remind you on the filing dateline, allowing businesses can operate and expand with ease.

DNA Accounting has the expertise to support day-to-day accounting, corporate tax and corporate secretary services in Singapore. Giving the business owner peace of mind allows them to focus on company operation matters. Subscribing to an outsourced accounting service in Singapore also lowers staff costs and enjoys the economies of scale professional accounting services in Singapore.

Common eCommerce Accounting Pitfalls

Mishandling sales tax / being late with tax deadline

eCommerce business can be easily set up by registering to a platform like Amazon or Shopee. However, such platforms usually charge a fee for every sale you make, of which a business owner will have to take into account the base price for the item listed and also the profit made, with the consideration of the budget 2021 GST proposal.

Wrong/no accounting software used

Businesses entering the world of e-commerce after running a traditional retail business may be too used to managing their books manually. Not using accounting software to streamline and automate functions can result in grave mistakes. There is simply no way that a business owner can manually keep the books for an e-commerce store doing business nationally or internationally effectively.

Disorganized Record-Keeping, infrequent bank reconciliation and not using a Chart of Accounts

Even the best accounting software requires an informed operator to pull the right strings. Most entrepreneurs tend to just lump expenses and revenue together, in doing so limits the software’s reporting capabilities. However, accounting professionals that use a chart of accounts to lay the foundation for improved financial recordkeeping and more informed budgeting, will better benefit the company.

Bank and credit reconciliations should be performed regularly. Failing to do so may allow discrepancies to linger through multiple reporting periods, affecting cash flow management, forecasting, and even tax calculations. The resulting implications can range from cash shortages to IRAS penalties, as well as the possibility of fraud.

DNA Accounting is able to point out the error and correct them in a timely manner, saving business owners’ the time trying to figure out and possible monetary fines and lawsuits for misreporting resulting in fraudulent behaviours.

• Mishandling Sales Tax:

The most challenging aspect of having an online business is appropriately handling sales tax. To charge a consumer the correct amount of tax, the tax rate must be determined just at the state and municipal levels.

There are stringent deadlines for remitting sales tax once it is received. It must be reported to a state and paid back on time.

• Misclassifying Employees:

E-commerce enterprises are more likely than cinder block retail companies to use consultants and freelancers, making it more probable that employees will be misclassified.

• Recognizing Revenue Incorrectly:

Because they keep a record based on as they were paid rather than when the transaction was made, many e-commerce companies inaccurately report the revenue they receive. The revenue from an online sale should be reported in the month it is made, even if the cash from the transaction is not transferred into your bank until the following month.

• Not Backing Up Data:

E-commerce operations cannot function without regular data backups. In order to avoid corrupted files, loss of data, or other catastrophic failures, financial data should be constantly backed up and preserved in a secure location.
It is also possible to recover excellent records using a data backup in the event of widespread mistakes occurring during routine operations and being too time demanding to correct.