E Commerce Accounting Entries

E-commerce businesses have unique accounting entries required due to the nature of online transactions. Here are important common accounting entries of e-commerce busines.

1. Sale of Goods Including GST

When a sale is made online, the business needs to record the revenue and also applicable taxes.

Example: A customer purchases goods worth ₹10,000, with GST 18%.

Journal Entry:

Explanation:

• Accounts Receivable/Cash Account Debit: Book the amount due from the customer or the cash received.
• Sales Revenue Account Credit: Book the revenue earned from the sale.
• GST Payable Account Credit: Book the liability for the GST collected on the sale.

2. Purchase of Inventory Including GST

When inventory is purchased or purchase of goods, it needs to be recorded along with any taxes paid.

Example: The business purchases inventory worth ₹50,000, and GST is 18%.

Journal Entry:

Explanation:

• Inventory/purchase Account Debit: Increases the inventory or purchase account for the cost of goods purchased.
• GST Input Tax Credit Account Debit: Records the GST paid i.e. ITC, which be claimed as an input tax credit.
• Accounts Payable/Cash Account Credit: Records the liability i.e. Payable or cash/bank outflow for the purchase.

3. Shipping Costs (Paid by the Business)

Shipping costs to be recorded, if the business bears the shipping expenses.

Example: The business pays ₹2,000 for shipping costs.

Journal Entry:

Explanation:

• Shipping Expense Account Debit: Records the cost of shipping as an expense.
• Cash Account Credit: Reduces the cash balance for the payment of shipping expense.

4. Refunds Issued to Customers when Return the Goods

When a refund is issued to a customer, it needs to be recorded.

Example: A customer is refunded ₹5,000 for a returned product.

Journal Entry:

Explanation:

• Sales Returns and Allowances Account Debit: Return of goods is recorded as a reduction in sales.
• Accounts Receivable/Cash Account Credit: Indicates the refund issued to the customer.

5. Commission Paid to Online Platforms

If an e-commerce business pays a commission for sales to an online platform, it should be recorded as an expense.

Example: The business pays ₹2,500 in commission to online platform.

Journal Entry:

Explanation:

• Commission Expense Account Debit: Records the commission paid as an expense.
• Cash Account Credit: Reduces the cash account for the payment.

Here are more examples of accounting entries specific to e-commerce transactions:

1. Payment Gateway Fees

When a customer makes a purchase through a payment gateway (e.g. PayPal, Razorpay, etc.), the gateway typically charges a fee.

Example: A customer makes a purchase of ₹10,000 through a payment gateway, which charges 2% as fee.

Journal Entry:

Explanation:

• Accounts Receivable Account Debit: The total amount due from the customer.
• Sales Revenue Account Credit: Records the sale.
• Payment Gateway Fees Account Debit: Records fees charged by the payment gateway as an expense.
• Accounts Receivable Account Credit: Reduces the amount receivable by the fee amount.
• Cash Account Debit: Net amount received after deducting gateway charges.
• Accounts Receivable Account Credit: Reduces the receivable balance by the net amount received.

2. Customer Return with Restocking Fee

Sometimes, a business may charge a restocking fee when a customer returns a product.

Example: A customer returns goods worth Rs 5,000, and the company charges a 10% restocking fee.

Journal Entry:

Explanation:

• Sales Returns and Allowances Account Debit: The amount of goods returned.
• Accounts Receivable/Cash Account Credit: The amount refunded to the customer after deducting restocking charges.
• Restocking Fee Revenue Account Credit: The revenue generated from the restocking fee.

3. Inventory Write-Down (Due to Obsolescence)

If any inventory becomes obsolete, it needs to be written down to reflect its decreased value.

Example: Inventory worth ₹10,000 is considered obsolete, and its value is reduced to ₹2,000.

Journal Entry:

Explanation:

• Inventory Write-Down Account Debit: Records the reduction in value of the inventory.
• Inventory Account Credit: Reduces the inventory account by the amount of the write-down.

4. Purchase Return

If an e-commerce business returns goods to a supplier, the following entry is made:

Example: Goods worth ₹15,000 are returned to the supplier.

Journal Entry:

Explanation:

• Accounts Payable/Cash Account Debit: Reduces the liability or increases cash if already paid.
• Purchase Returns Account Credit: Records the return of goods to the supplier.

5. Sales Promotion Expense (Discount Coupons)

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Example: The business issues discount coupons worth ₹2,000 to customers.

Journal Entry:

Explanation:

• Sales Promotion Expense Account Debit: Records the cost of issuing discount coupons.
• Discount Coupons Payable Account Credit: Creates a liability for the future redemption of the coupons.

6. Vendor Payment through Bank Transfer

When payment is made to a vendor via bank transfer, the entry is recorded as follows:

Example: The business pays ₹25,000 to a supplier through bank transfer.

Journal Entry:

Explanation:

• Accounts Payable Account Debit: Reduces the liability to the supplier.
• Bank Account Credit: Reduces the bank account balance for the payment made.

7. Monthly Subscription Revenue

If the e-commerce business offers a subscription service, revenue needs to be recorded each month.

Example: The business collects ₹1,000 from a customer for a monthly subscription.

Journal Entry:

Explanation:

• Cash/Accounts Receivable Account Debit: book the cash received or amount receivable from the customer.
• Subscription Revenue Account Credit: book the revenue earned from the subscription.

8. Cost of Goods Sold (COGS)

When recording the cost of goods sold, the following entry is made:

Example: The cost of goods sold for the month is ₹20,000.

Journal Entry:

Explanation:

• Cost of Goods Sold Account Debit: Records the cost associated with the goods sold.
• Inventory Account Credit: Reduces the inventory by the cost of goods sold.

9. Payment for Advertising

When the business pays for online advertising, the expense is recorded.

Example: The business pays ₹5,000 for a Facebook ad campaign.

Journal Entry:

Explanation:

• Advertising Expense Account Debit: Records the cost of the ad campaign.
• Bank/Cash Account Credit: Reduces the bank account or cash balance for the payment made.

10. Employee Salary Payment

When salaries are paid to employees, the following entry is made:

Example: The business pays ₹50,000 in salaries.

Journal Entry:

Explanation:

• Salary Expense Account Debit: book the salary expense.
• Bank Account Credit: Reduces the bank balances for the salary payment.