A Guide to Bookkeeping for Etsy Sellers

We’ll go through the fundamentals of bookkeeping, that all Etsy sellers should understand in this post, along with several tools that can help.

When you decided to start your Etsy shop, bookkeeping probably wasn’t the future you pictured for yourself, crunching figures for hours on end.

But fortunately, you don’t have to be a numbers ninja to keep your bookkeeping organized. We’ll go through the fundamentals of bookkeeping. One that every Etsy seller should understand in this tutorial, along with several tools that can help.

What is Bookkeeping?

The practice of bookkeeping is keeping track of all financial transactions affecting your company. Either through accounting software or a set of actual “books.” You can produce trustworthy financial reports using these records. Such as revenue and expense statements, which reveal if your company is profitable at a particular point in time.

You may get a thorough understanding of your company’s current financial situation and the information you need to make wiser business decisions. You can do this by analyzing your income statement in conjunction with other financial reports like cash flow statements and balance sheets.

Financing in Etsy

Since Etsy is an eCommerce platform, your bookkeeping will be different from a traditional business.

Although the foundations of bookkeeping remain the same, there are several factors unique to eCommerce that you must take into mind.

These factors include:

Revenue tax
Inventory control
Taxes deductible
Compliance Amount of transactions
Retail charges
Returns

Since keeping track of all your transactions manually takes time and effort, there are DIY accounting software programs that can automate many of these tasks. Some of which feature interfaces with Etsy.

What Benefits May Bookkeeping Provide to Your Etsy Shop?

How accurate and current your books are directly related to the health of your firm.

For instance, maintaining your books will help you better manage your cash flow. Which is a major contributing factor to the failure of 82 percent of small enterprises. Making data-driven business judgments rather than decisions based solely on intuition is another benefit of keeping up with your books.

Calculate tax deductions.
Decide how to control cash flow during difficult times.
Stay away from tax letters, penalties, and fines.
It is simpler to spot fraud and other banking mistakes.
Give the comprehensive financial background required to be approved for a loan.
Identify trends and set precise growth benchmarks.
Forecast your inventory.
Make informed financial decisions and financial reports.

Etsy Accounting Versus Etsy Bookkeeping

Even though the terms “accounting” and “bookkeeping” are frequently used interchangeably, they refer to two distinct tasks. Accounting examines and interprets a company’s financial activities. Whereas bookkeeping just records those events.

Several instances of typical bookkeeping chores include:

Transaction classification
Invoicing
Monitoring stock
Creating profit and loss statements and balance sheets

Contrarily, accounting takes a wider perspective. Etsy sellers must recognize that the accuracy of your accounting analysis directly depends on how precise your bookkeeping records are. If you want the additional analysis to guide business growth. Any accounting conclusions will be inaccurate if your bookkeeping is outdated.

Among the duties that accountants frequently carry out are:

Examining the financial statements that a bookkeeper has created
Creating statements, models, and reports
Checking books
Tax filing
Making financial projections
Carrying out risk analysis

Particular Bookkeeping Issues for Etsy Merchants

When it comes to handling your cash, Etsy sellers have a particular set of difficulties. Here’s how to make sure your company succeeds.

Accountants frequently do the following tasks, among others:

Going over the financial records that a bookkeeper has created
Creating models, reports, and statements
Book auditing
Doing your taxes
Forecasting the financial situation
Finished risk analysis

Particular Bookkeeping Considerations for Etsy Sellers

You face a special set of difficulties in handling your money if you are an Etsy vendor.

Select the accounting method that you’ll employ: accrual or cash-basis.

The cash basis method is ultimately chosen by the majority of small firms because it is simpler to understand and operate. You always have complete knowledge of your current cash balance.

Contrarily, accrual accounting is a technique of accounting that records transactions as they happen. Even if the firm owner hasn’t yet received payment.

Accrual accounting is most typically used by bigger, more established organizations.

Remember to Account For Etsy Seller Fees

Even though you don’t have to pay rent for a physical business every month, Etsy fees can significantly reduce your income. When you price goods, file your taxes and determine your return on investment, don’t forget to take Etsy fees and other business-related costs into account. Otherwise, you run the risk of overvaluing your achievement, underpricing your items, overlooking tax deductions, and paying too much in taxes.

Merchant fees: Etsy takes a commission of 6.5 percent of the item cost when you sell something.
$10 per month will be the cost of your Etsy Plus subscription.
3% of the listing price plus $0.25 is the processing cost if your customer chooses to pay through Etsy payments.
9 percent of the listing price plus $0.30 is the fee for using PayPal and Square, among other payment processors.

Advertising Fees: As an Etsy shop owner, you can deduct any online, print, or other advertising expenses you incur. Additionally, you can deduct your Etsy listing fees from your taxes as advertising costs.

Listing costs: Every four months or until they sell, Etsy charges $0.20 for each listing.

Third-party tools: You can deduct your subscription payments for third-party products, like inventory management or bookkeeping software, while submitting your annual taxes.

The conclusion

The success of your Etsy shop is significantly influenced by your bookkeeping.

Even if you may be most passionate about your best-selling crocheted blankets or macramé wall hangings, neglecting your finances might result in poor decisions and higher risk for your company.