This episode provides an essential "Ecommerce Accounting 101" for online sellers. Learn how to decipher key financial statements like the P&L and Balance Sheet, understand COGS, and calculate gross and net profit to accurately assess your business's financial health daily or monthly. Gain fundamental knowledge to make informed financial decisions and keep your ecommerce venture on track.
Key takeaways
The primary function of accounting is to provide actionable financial reports (P&L, Balance Sheet) that allow you to regularly understand your business's performance.
A Profit & Loss (P&L) statement details top-line revenue components like Amazon sales, while the Cost of Goods Sold (COGS) includes all costs to create, ship, and sell a product, including shipping.
Gross Profit is calculated by subtracting COGS from your P&L revenue; Net Profit is then derived by subtracting operational expenses (e.g., payroll) from your Gross Profit.
The Balance Sheet provides a snapshot of your company's financial position, detailing assets (inventory, cash) and liabilities (business loans).
Regularly reviewing your P&L and Balance Sheet is crucial for financial decision-making and ensuring your ecommerce business is healthy and on track.
Ten episodes ago, I talked about some of the math involved in running an ecommerce business. Episode 250 ended up being one of our most impactful episodes to date. So I thought it would be a good idea to do a deep dive on all the essentials of ecommerce accounting. To do this effectively, I needed to have an expert on board to break down all these things with me. Luckily, I sat next to Scott Scharf and his wife at a dinner during this year's Ecommerce Fuel Live and he agreed to come on the show. A Little Bit about Scott Scott Scharf is the co-founder of Catching Clouds, an accounting services company that caters specifically to online businesses. Through the company, he's worked with ecommerce entrepreneurs for nearly eight years, helping them stay on track financially. What We Covered In this episode, Scott and I go full Ecommerce Accounting 101. Here are some of the basic concepts and terminologies discussed. The most important function of accounting is to have financials you can look at on a daily or monthly basis that will tell you how your business is doing. Profit & Loss Statement (P&L) - all the components that make up your top-line revenue; also called an income statement. An example would be Amazon sales. Cost to Goods Sold (COGS) - shows how much it costs to create, ship, and sell a product/widget. Shipping cost would be included here. Subtracting COGS from P&L would give you the Gross Profit. Subtracting your operation expenses (e.g. payroll) from Gross Profit would give you your Net Profit. Balance Sheet - a report of the company's assets (e.g. inventory, money in the bank) and liabilities (e.g. business loans). Listen to the entire podcast to
What does this episode say about finance & fundraising?
The primary function of accounting is to provide actionable financial reports (P&L, Balance Sheet) that allow you to regularly understand your business's performance.
What does this episode say about founder & leadership?
A Profit & Loss (P&L) statement details top-line revenue components like Amazon sales, while the Cost of Goods Sold (COGS) includes all costs to create, ship, and sell a product, including shipping.
What does this episode say about finance & fundraising?
Gross Profit is calculated by subtracting COGS from your P&L revenue; Net Profit is then derived by subtracting operational expenses (e.g., payroll) from your Gross Profit.
What does this episode say about finance & fundraising?
The Balance Sheet provides a snapshot of your company's financial position, detailing assets (inventory, cash) and liabilities (business loans).
What does this episode say about finance & fundraising?
Regularly reviewing your P&L and Balance Sheet is crucial for financial decision-making and ensuring your ecommerce business is healthy and on track.
