For those of us who aren’t number crunchers entrenched in the world of finance, many of the accounting terms we come across on a daily basis in our personal and professional lives can seem confusing or contradictory. The concept of revenue definitely falls into this category.
Here are some key points to keep in mind when the time comes to understand your revenue and analyze the financial performance of your ecommerce business.
What is Considered Revenue?
For ecommerce sellers, revenue is basically the amount of money you bring in from your online sales.
As an online seller, you already know that the bread and butter of your revenue will come from selling products online. This revenue can be supplemented with business partnerships, affiliate marketing programs, and more. Revenue refers exclusively to any money your ecommerce business brings in, and doesn’t take into account costs or other factors like sales taxes charged online.
Revenue is one of the first items listed on a company’s chart of accounts and general ledger, and is a key accounting concept when it comes to keeping your books in order.
Understanding Your Revenue vs. Profit
If you read about revenue online, you’ll find that it’s a term thrown around interchangeably with profit, but be careful…they’re very different. Remember, revenue is the total amount of money that you bring in. Profit, on the other hand, is the amount left over when you subtract the total costs of running the business. In other words, subtract salaries and commissions (if you have employees or work with third-party systems) on top of all the other payments related to your business. Your profits refer to the money you bring in minus any operating costs.
When talking about revenue, some equivalent terms you could use are earnings and income, not profit.
Ecommerce Revenue and Taxes
Businesses have to make tax payments every quarter. As far as federal taxes go, every business in the US pays income tax on profits, not on revenue. This means the amount you owe Uncle Sam and the IRS will depend on the amount of money left over after all your business costs have been deducted.
Some states and cities don’t charge sales tax, but if you find yourself doing business in a place that does, legal tax obligations fall upon your customers, who will cover the cost. Even so, it’s your responsibility to keep track of your ecommerce tax revenue and pass it onto the relevant tax collection agencies. If you happen to be an FBA seller, you’re in luck because Amazon will do this for you automatically.
Conclusion: Tracking Your Revenue
Whether you are a sole proprietor or run a small to medium-sized corporation, keeping track of revenue and other key accounting metrics are important for running a healthy ecommerce business. If you’re not an accounting pro and can’t afford to hire one full time, don’t worry! Nowadays technology has made it easier than ever for online sellers.
Ecomdash offers you an online inventory management software with reporting tools that cut out data entry and take the accounting load off your shoulders. It helps you optimize inventory while keeping track of sales and tax revenue in real time.
By giving you a crystal clear picture of your inventory, tax obligations, and where earnings are coming from, you can focus on building strategies to optimize sales revenue and grow your business. Start your free trial today!