Bookkeeping Basics to Get Your eBay Store Started
Although posting bookkeeping entries for your eBay business can be boring, clicking a button to generate your tax information is a lot easier than manually going over pages of sales information on a pad of paper. That’s why many business owners like to use a software program, particularly QuickBooks (more about that program later).
You could use plain ol’ paper and a pencil to keep your books; if that works for you, great. But even though that might work for you now, it definitely won’t in the future. Entering all your information into a software program now — while your books may still be fairly simple to handle — can save you a lot of time and frustration in the future.
Track everything in and out
To effectively manage your business, you must keep track of all your expenses — down to the last roll of tape. You need to keep track of your inventory, how much you paid for the items, how much you paid in shipping, and how much you profited from your sales.
If you use a van or the family car to pick up or deliver merchandise to the post office, you should keep track of this mileage as well. When you’re running a business, you should account for every penny that goes in and out.
Bookkeeping has irrefutable standards called GAAP (Generally Accepted Accounting Principles) that are set by the Financial Accounting Standards Advisory Board. (It sounds scary). Assets, liabilities, owner’s equity, income, and expenses are standard terms used in all forms of accounting to define profit, loss, and the fiscal health of your business.
Account for everything — twice
Every time you process a transaction, two things happen: One account is credited while another receives a debit (kind of like yin and yang). Depending on the type of account, the account’s balance either increases or decreases. One account that increases while another decreases is called double-entry accounting:
When you post an expense, the debit increases your expenses and decreases your bank account.
When you purchase furniture or other assets, it increases your asset account and decreases your bank account.
When you make a sale and make the deposit, it increases your bank account and decreases your accounts receivable.
When you purchase inventory, it increases your inventory and decreases your bank account.
When a portion of a sale includes sales tax, it decreases your sales and increases your sales tax account.
Manually performing double-entry accounting can be a bit taxing (no pun intended). A software program, however, will automatically adjust the accounts when you input a transaction.
Separate business and personal records
As a business owner, even if you’re a sole proprietor, you should keep your business books separate from your personal expenses. By isolating your business records from your personal records, you can get a snapshot of which areas of your sales are doing well and which ones aren’t carrying their weight. But that isn’t the only reason keeping accurate records is smart; there’s the IRS to think about, too.
Okay, posting bookkeeping can be boring. But at the end of the fiscal year, when you have a professional do your taxes, you’ll be a lot happier — and your tax preparation will cost you less — if you’ve posted your information cleanly and in the proper order. That’s why using a program such as QuickBooks is essential to running your business.