When you first set up a business’s accounting software, you’ll want to make sure there is a template for online retail. QuickBooks Online does a good job asking what kind of business you have when setting up an account. It’s hard to go wrong with them.
Personally, I find it easier to categorize income and expenses by eliminating unneeded categories. Here are some brick and mortar businesses accounts that might be unnecessary for an online retail business. Along with them are accounts you may wish to have instead in your COA.
Assets
POS Equipment & Hardware – Everyone’s buying things on their computers or phone.
Instead: Payment processor balances (PayPal, Stripe, Shopify Payments, Amazon – one for each platform you use)
Cash on Hand / Safe Float – everything is done online, so there’s no need to have physical cash on hand.
Instead: Digital Platform Deposits (pending payouts from marketplaces – similar to accounts receivable. They are sales you have made but have not gotten deposits to your bank for yet.
Leasehold Improvements – Highly unnecessary unless you’re improving a warehouse or office while paying rent for it.
Income
In-Store Sales – you have no store.
Instead: Marketplace sales (Your website, Amazon, Etsy, eBay, etc. – one account for each)
Special Event Sales – you have no in-store events
Instead: Discount code sales (to record the amount of discount off the price during sales events)
Recommended: Affiliate income/Ad revenue – You might earn affiliate sales of other people’s products or get paid for views on content sites like YouTube. Account for that.
COGS
Store Fixtures & Displays
Instead: Online ads by platform (Facebook, google, etc.)
Recommended: Transaction fees (for every marketplace on which you make sales, including Amazon FBA if you use it)
Expenses
Rent / Lease – If you’re just starting you are most likely using your residence for storage.
Instead: Web Hosting / Domains, Ecommerce Platform fees (most sites like Shopify charge by the month)
Recommended: Email Marketing Tools, Software Tools, Shipping/Postage
Janitorial & Maintenance – Not needed as much for online.
Security Services – Not needed as much for online unless you have a warehouse.
These recommendations should tell you what to remove and what to add if you haven’t set that up yet. This should also give you an idea of how to categorize expenses in the beginning. Remember to revisit your chart of accounts at the end of the year at least to see what categories you should add or remove.
To have me as your bookkeeper, and save 80+ hours a year compared to doing it all yourself, schedule a call with me to talk about your business goals.