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1. Introduction to E-Commerce
Internet Commerce
By Internet commerce, we mean the use of the global Internet for purchase and
sale of goods, services, including service and support after sale. Internet commerce
brings some new technology and new capabilities to business, but the fundamental
business problems are those that merchants have faced for hundred - even thousands
- of years: you must have something to sell, make it known to potential buyers,
accept payment deliver the goods or services, and provide appropriate service after
the sale. The Internet is an efficient mechanism for advertising and distributing
product information. It’s enabling complete business transactions. Internet
commerce is one type of the more general “electronic commerce”.
E-commerce
E-commerce is buying and selling goods and services over the Internet. Ecommerce
is part of e-business. E-business is a structure that includes not only those
transactions that center on buying and selling goods and services to generate
revenue, but also those transactions that support revenue generation. These
activities include generating demand for goods and services, offering sales support
and customer service, or facilitating communications between business partners. By
the help of the flexibility offered by computer networks and the availability of the
Internet, E-commerce develops on traditional commerce.
E-commerce creates new opportunities for performing profitable activities online.
It promotes easier cooperation between different groups: businesses sharing
information to improve customer relations; companies working together to design
and build new products/services; or multinational company sharing information for
a major marketing campaign.
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The followings are the business uses of the Internet. These services and capabilities
are a core part of a successful e-commerce program. They are either parts of a value
chain or are included as supporting activities:
? Buying and selling products and services
? Providing customer service
? Communicating within organizations
? Collaborating with others
? Gathering information (on competitors, and so forth)
? Providing seller support
? Publishing and distributing information
? Providing software update and patches
E-Commerce stands for electronic commerce and caters to trading in goods and
services through the electronic medium such as internet, mobile or any other
computer network. It involves the use of Information and Communication
Technology (ICT) and Electronic Funds Transfer (EFT) in making commerce
between consumers and organizations, organization and organization or consumer
and consumer. With the growing use of internet worldwide, Electronic Data
Interchange (EDI) has also increased in humungous amounts and so has flourished
e-commerce with the prolific virtual internet bazaar inside the digital world which
is righty termed as e-malls.
We now have access to almost every knick-knack of our daily lives at competitive
prices on the internet. No matter one is educated or illiterate, an urbane or a
countryman, in India or in U.K; all you need is an internet connection and a green
bank account. With e-commerce then, you can buy almost anything you wish for
without actually touching the product physically and inquiring the salesman n
number of times before placing the final order. Here is a beautiful picture depicting
how has human life evolved to adapt to the digital world and hence trading over the
internet. As seen, from pizza and potted plant to pair of shoes, we have everything
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on sale on the internet available in tempting offers..!! Snapdeal.com, Amazon, eBay,
Naaptol, Myntra, etc. are some of the most popular e-commerce websites.
Airline and travel tickets, banking services, books, clothing, computer hardware,
software, and other electronics, flowers and gifts are some popular products and
services that can be purchased online. Several successful e-businesses have
established their business models around selling these products and services.
Ecommerce has the potential to generate revenue and reduce costs for businesses
and entities. Marketing, retailers, banks, insurance, government, training, online
publishing, travel industries are some of the main recipients of e-commerce. For
instance, banks use the Web for diverse business practices and customer service.
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2. Retail/E-commerce Accounting
While the virtual world of e-commerce has expanded the opportunities for
traditional and online retailers, the unique challenges of integrating front and back
office systems and managing the resulting data can be a daunting task.
Intelligent planning and technical proficiency are required as each retail book-
keeping/e-commerce book-keeping solution must be custom-designed for the
specific needs of each business configuration.
Our extensive history with the brick-and-mortar and online retail industries allows
us to analyze your current processes and recommend thoughtful technologies that
increase efficiency and accuracy. Once we understand how the various segments of
your business relate to one another and build an integrated retail
bookkeeping/ecommerce bookkeeping system to provide the necessary operational
details, we can further consult on how to make the most of what the data is telling
us.
? Sales and Data Entry for Retailers
Because virtual and physical inventories can have varying margins and origins, it is
important to properly classify and track the performance of each product to identify
winners. Our sales data entry focuses on analyzing relative performance for
maximum profitability. Through the use of custom segmentation, retailers are able
to quickly identify and feature high volume and high profit items and minimize or
remove items from their inventory that aren't selling. In addition, our sales systems
deliver instant feedback on the various marketing efforts. The faster you learn the
metrics of what's working and what's not, the faster you are able to push on
successful campaigns and cut non-performers.
Lescault and Walderman recognizes the importance of sales and marketing data
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entry. We consult with our clients to create the unique classifications and track the
categorical details that ensure the most efficient use of the data itself.
? Accounts Payable Management for Retailers
Considering the significant number and variety of sources for your retail business,
maintaining an efficient and accurate accounts payable system is critical to the
health of your ongoing business relationships. This starts with an organized system
of entry, involves diligent oversight and ends with a system of checks and balances.
A solid AP system with proper oversight is highly effective at preventing common
mistakes and errors. This can quietly represent significant savings for your
business. In addition, checks and balances are instrumental in raising red flags that
alert owners to problem activity. The earlier this activity is identified and rectified,
the lower the cost and impact to your business.
Because of our experience with both physical and virtual retail businesses, Lescault
and Walderman is able to build proven accounts payable systems, while offering
unique shortcuts and time-savers that will help to streamline the accounts payable
management in your retail/e-commerce business.
? Account Reconciliation for Retailers
Employing an impartial third party to provide account reconciliation can be one of
the most insightful and beneficial decisions you can make for your business. From
increased visibility to more efficient risk management, account reconciliation offers
an abundance of benefits.
Oftentimes, a fresh set of eyes can identify obvious issues that don't stand out to
daily users who might be too familiar with the workflow and data passing through
their system. The reconciliation process, when properly implemented, can provide
a wealth of useful information on the true health of your business. Using a
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consultant to perform the account reconciliation, retailers are able to focus on
implementing appropriate management methods.
We've found that experience is truly the greatest teacher when it comes to account
reconciliation, and we lean heavily on ours to share what we've learned with our
clients. We've encountered a wide variety of unique and interesting issues in the
performance of our reconciliation processes and are ready to help serve and protect
your business.
? Financial Reporting for Retailers
Financial statements (balance sheets, profit and loss statements) are one of the most
essential components of your retail/e-commerce book-keeping system. They are the
primary method for communicating the financial health of your retail business to
outside parties.
When financial reporting is timely, business owners are able to focus on current
issues and make the most of their financial information systems. In addition, they
are able to more effectively plan for the future. The higher the quality of the
financial reports and the information contained therein, the greater the effectiveness
of the plans that result from them.
We see financial reporting as one of the most important services that we offer our
customers. When built on accurate data and prepared for simple but thorough
analysis, these prepared documents can become the difference between success and
failure.
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3. Accounting for E-commerce Businesses
Accounting plays a crucial role in tracking the health and defining the roadmap for
your e-commerce business. When accounting for your online store, there are some
very specific actions needed to ensure accurate and timely reports.
If you are a store owner or an accountant new to e-commerce, there will be a
learning curve. No worries. To get you started here’s a comprehensive introductory
guide. Let’s look at six of the best accounting practices to track the growth of your
online store:
A. Record your invoices with payments
Bookkeeping is often defined in simple terms as the practices of keeping daily
records of your financial transactions. For your online store, the ‘Order’ coupled
with the linked ‘Payment’ is your transaction. There are primarily two ways to go
about it:
1. Record every transaction: This is one of the most recommended practices
if you have 1-2 selling channels. When you are in the early growth stages of
your business, it is important to track sales by customer name and other
individual order level details.
2. Record summary transactions daily/weekly: Expert CPAs and CFAs in
the e-commerce accounting space advice this if you are doing multi-channel
sales. At this level, your accounting application doesn’t meet your CRM
(Customer Relationship Management) needs. So a summary transaction of
your sales by channel should meet your needs. There is one important step
you should take when recording your invoices in apps like QuickBooks
Online or Xero. Link it with the appropriate payment you received from the
customer. Without this step, you have the chance of double counting sales.
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B. Record Inventory on hand
Inventory is one of the primary business assets in your e-commerce business. The
inventory count tells your store’s Goods on hand. Businesses constantly strive to
perfect inventory management to avoid lost sales, disruptions in production, high
holding costs, etc.
Note: Inventory Tracking is available with ‘QuickBooks Online Plus’ plan only. As
of today, Xero supports Inventory Quantity tracking.
C. Track your Cost of Goods Sold (COGS)
When acquiring inventory to sell on your website, you are exchanging cash for
inventory asset. The challenge lies in the fact that the cost cannot be deducted till
you sell. When it sells, your COGS should be updated appropriately. COGS
reporting is a way to track your costs associated with each item that sells from your
store.
Here’s a simple formula to calculate your Cost of Goods Sold:
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Sample Template:
Why you need it:
Getting the pricing right is crucial to building a profitable and sustainable business.
Once you know the actual COGS, you should be able to tweak and optimize the
selling price towards it.
However, businesses calculate COGS at a very basic level and do not count for
indirect costs in acquiring inventory. Make sure you look beyond just how much
you paid for the goods. Have you included shipping costs? What about the
packaging costs for all your products? A comprehensive and accurate COGS report
ensures that you are not overstocking and your expenses are under check.
D. Capture Sales Tax liabilities
Most ecommerce sellers we come across go through a learning curve as they build
their business. With respect to bookkeeping, accounting for Sales Tax liabilities is
one of the biggest hassles. Different states have different rates and so do multiple
counties and municipals. Are you outside US/Canada? Consider the VAT on your
Orders.
E-commerce tools like Shopify and Big commerce will calculate it automatically
for you when a customer orders a product from your site. The next step is to record
the same in your accounting application. The Sales Tax should be recorded at the
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Invoice level for accurate reports. Applications like QuickBooks Online or Xero
will let you run reports to show your liabilities to State, County and Municipal Tax
agencies.
E. Reconcile all your accounts
Bank reconciliation is the process of matching transactions you’ve got recorded in
QuickBooks Online/Xero to what you’ve got in the bank. It is a critical step to avoid
double counting and to ensure that your bottom line is accurate.
If you using an e-commerce platform like Shopify, you need to consider the
payment transaction fee charged by the payment processor (Shopify, PayPal etc.)
To do this manually, you need to create a ‘Credit Note’ at the Invoice level before
linking it to the respective payment from the customer.
F. Automate
All of the above mentioned accounting practices can be done manually. The
constraint though is time. Also, with manual efforts the perils of errors and double
data entry come along there are tools to automate most of the time consuming
practices for your e-commerce store. Top providers like Shopify and Big commerce
have App Stores to extend to automate business processes. Pipemonk is a 5-star
rated and certified app in Shopify & Intuit. Our mission is to save you 100+ hours
a month in manual accounting.
G. Profit and Loss Report/Income Statement
Simply put, this report gives the profit or loss for a given time period.
Every income statement has a top line – representing the “gross revenue” or “sales”;
and a bottom line – representing the actual “net profit/loss” or “net income”.
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Sample Template:
Why you need it:
Your business earns a net income when your revenue from product sales exceeds
expenses. A positive “net income” effectively means you have increased your assets
and the revenue from those assets outweighs the costs of acquiring the assets. An
Income Statement lets you evaluate the profitability, performance and lets you
assess the risk for any investor or creditor in your online venture.
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H. Balance Sheet
A Balance Sheet tells you the actual value/worth of your business. It lists down your
Assets, Liabilities, and Equity.
Equity is calculated as:
Sample Template:
Why you need it:
With an accurate Balance Sheet in place, you can calculate two important metrics
to measure the health of your business:
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i) Quick Ratio: It is the measure of short term health of your business. The higher
the quick ratio, the better.
Here’s the formula to calculate it:
If the ratio for you is 1:1, you should be able to pay off all the liabilities / bills on
time. Raise a red flag if the Quick Ratio is around 4:1 is not good for a business as
this implies that the business has 4 times idle assets against the requirement of 1.
ii) Current Ratio: Current Ratio is the ability of your e-commerce business to pay
current liabilities with current assets. It can be calculated as follows:
Make sure you do everything in your capacity to keep the Current Ratio above 1.
Though a ratio less than 1 does not immediately signal bankruptcy, it is a signal to
correct the course.
The above accounting practices ensure that your bookkeeping is up to date and
accurate.
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4. Accounting Issues Faced by the E-commerce
Industries
E-Commerce, e-tail, e-retail, dot com, online shopping, etc., call it what you want,
but they are here to stay. You can now buy everything from luxury products to
vegetables online. As the Indian economy expands, consumption is also expected
to rise and this sector is expected to grow as well. As the e-commerce industry
emerges, relatively little industry specific accounting guidance is available that
addresses some of the accounting challenges faced by this sector.
We have sought to discuss a few sector specific accounting issues in more detail,
focusing on the most significant areas which are commonly faced by the e-
commerce industry across the world.
I. Revenue recognition
E-Commerce companies often are valued based on revenue multiples and hence, it
is one of their most important metrics. Revenue is an area which is susceptible to
misuse and fraud. Therefore, it is subject to constant scrutiny by the regulators. This
accounting issue is primarily to determine timing of revenue recognition and
presentation (gross vs. net). Most of the e-commerce companies either accept
payments online through credit cards, internet banking, debit cards or cash on
delivery. Additionally, in most of these companies, delivery is the responsibility of
the company and hence, it becomes important to determine on when does the ‘risk
and rewards’ get transferred to the customer. It is to be noted that this issue is
relevant for both B 2 C (Business to Consumer) and B 2 B (Business to Business)
models. One of the indicators to determine the timing of revenue recognition is to
know who bears the insurance cost/ risk. In practice, many of the large e-retail
companies enter into agreements with logistic providers who are willing to bear
insurance cost and risk of delivery and under such contracts, companies would
recognize revenue on dispatch of goods from the warehouse. Sometimes, cost of
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delivery is built in to the pricing of the product and the cost of transport is borne by
the e-commerce entity; then the risk of delivery and loss is still with the e-commerce
company. In such cases, it may be appropriate to recognize revenues only once the
products are delivered to the customer. Additionally, in practice, an option is given
to the customers to return the goods sold; then it is important to evaluate each such
offer more specifically to understand the facts and circumstances and their
repercussions on accounting. Generally, when the buyer has a right of return and
there is uncertainty about the possibility of return, revenue is not recognized until
the shipment has been accepted by the customer or the goods have been delivered
and the time period for rejection has elapsed.
An entity considers historical experience in assessing the possibility of return. If,
based on past experience, the entity can make a reliable estimate of the amount of
goods that will be returned, then it would be appropriate to recognize revenue for
the amount that is expected to be received for items that are not returned (assuming
that the other conditions for revenue recognition are met). Due to the current legal
framework in India, a B 2 B entity may not be allowed to make a sale to retail
customers and is required to sell its goods to B 2 C companies. This relationship
could have an impact on the presentation of revenues in the books of accounts of B
2 C and B 2 B on a gross or net basis. Under Indian GAAP, the Technical Guide on
Accounting Issues in the Retail Sector is issued by the Institute of Chartered
Accountant of India (ICAI), provides guidance on presentation of revenues.
As per the Technical Guide, some of the factors that indicate that an entity is acting
as a principal in transactions could include (indicative list only):
? The customer understands that the entity is acting as the primary obligor in
the arrangement
? The entity is able to set the selling price with the customer
? The entity has inventory risk
? The entity performs part of the services provided or modifies the goods
supplied
? The entity has or assumes the credit risk associated with the transaction.
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Revenue represents the amount receivable by an entity for its own account.
Therefore, for a principal, revenue should be presented at its gross amount and is
measured before deducting related costs such as costs for materials and salaries. In
an agency relationship, the amounts collected on behalf of and passed on to the
principal is not revenue of the agent. The revenue of the agent is the amount of
commission, plus any other amount charged by the agent to the principal or other
parties. The principal in an agency relationship recognizes the gross amount charged
to the ultimate customer as revenue. Commission paid to the agent is accounted for
as an expense by the principal. Determining whether an entity is acting as an agent
or principal is based on an evaluation of the risks and responsibilities taken by the
entity, including factors as mentioned above such as inventory risk and
responsibility for the delivery of goods or services. A common example in this field
is that an e-commerce company purchases traded goods from a wholesaler. E-
Commerce Company generally would sell these goods to the end customer and may
or may not carry the associated inventory risk as it purchases goods from the
wholesaler only when it receives orders from the end customer. However, it may
bear the risk of those inventory items that have been returned by the customers.
In such a scenario, the e-commerce company does not seem to bear significant
inventory risk, however, it may bear the following:
? Credit risk
? is primarily responsible for providing the goods to the customer, i.e.,
fulfilling the order
? Direct pricing discretion
? Discretion in selecting the supplier/ wholesaler.
Therefore, in this case, the e-commerce company should reflect gross billing to its
customers as its revenue.
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II. Taxation
India has a myriad of taxes. Hence, the companies operating in the e-commerce
industry need to have a strong taxation team to ensure that they are in compliance
with the various tax regulations. The Internet and new communication technologies
have introduced a new channel through which sales may occur. Some of the taxation
challenges may arise as a result of the blurring of the distinctions between traditional
commerce and commerce involving digitized products. It is a matter of debate,
however, as to whether these new channels create new products. Some believe that
delivery through these channels alters the character of a product to such a degree
that it must be considered a wholly new product, distinguishable from that delivered
through traditional channels, and therefore, should be treated as unique for tax
purposes.
Direct taxation: One of the keenest legal issues related to e-commerce remains to
be taxation of revenues generated on the web. Traditionally, taxing rights on
business profit lies with the source country and a business is said to have a source
in a country if it has a ‘Permanent Establishment’ (PE) in that country. PE by
definition relies on a fixed place of business. In e-commerce, a non-resident
business does not need a fixed place of business in another country. Therefore, the
concept of PE is not easily applied to e-commerce. Accordingly, as e-commerce
companies explore businesses across international borders, this is expected to be
one of the most important issues to be dealt with regard to the taxation. It has to be
noted that national governments and international organizations (like Organization
for Economic Co-operation and Development (OECD)) have responded to the
challenges posed by e-commerce transactions. In India, the Central Board of Direct
Taxes had constituted a High Powered Committee to discuss the taxation of e-
commerce transactions. It appears that current direct tax laws (including treaties)
may not be capable of addressing fully the novel issues brought on by e-commerce.
Consensus is yet to emerge amongst major countries on this area.
Inter-state taxes in India: There are challenges with respect to incidence of inter-
state taxes (i.e., where the tax incidence is on the end consumer like sales tax, value-
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added tax, etc.). For example, an e-commerce company based in Karnataka takes
an order from a customer in Maharashtra, while goods are supplied from a vendor
in West Bengal, the question: the inter-state taxes need to be paid by the vendor in
West Bengal; or the e-commerce company in Karnataka, is not free of doubt. The
tax authorities in India do not seem to have a settled position on these issues.
Companies may need to consult with their tax specialists as the tax liabilities often
have to be evaluated on a case to case basis.
III. Inventory accounting
In the initial years of a setup, e-commerce companies that cater to retail customers
and often carry significant inventory whilst focusing on increasing their revenues
through aggressive customer acquisition. However, one of the key challenges for
operational success is their inventory management process and ability to effectively
manage a lean working capital. Such companies may have built-up inventory in the
hope to achieve higher volumes, which is expected to compensate for the low
margin on sales. Additionally, a constant change in product portfolio and freebies
could lead to challenges in the management of the inventory records. If an entity
does not have a strong control environment to monitor its inventory, then such an
entity may face a write down of inventory balances as at the reporting date. Further,
ascertaining cost versus net realizable value, whichever is lower, becomes a
challenge as the margins on such product portfolios are slim, which may add to the
inventory write down provision. Hence, it becomes extremely important to
maintain, monitor and control inventory for an effective inventory management.
IV. Logistics
Many companies believe that the biggest impediment is unreliable third-party
logistics and delays in delivery due to poor surface transport. It is important to have
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a well drafted agreement with logistics and reverse logistics providers as the
following accounting aspects could have an impact:
• Accounting for revenues: Certain logistics provider take over the risk and
rewards when such goods are collected from the companies’ warehouse, which
could remove the delay and hassle of evidencing delivery for revenue recognition.
• Mode of payment: Certain logistics providers collect cash from the respective
customers and aggregate the same and deposit it into the company’s bank account,
by which the company could mitigate its risk associated with cash handling.
• Cost recognition: There are various ways a logistics provider is paid, per piece
basis, monthly based on volumes, etc. It is critical that companies understand such
arrangements as the related volume discount earned or monthly charges paid would
need to be accounted appropriately.
In addition to the above, certain logistics providers, also provide warehousing and
inventory management. It is important for companies to have an effective control
and monitoring mechanism when goods are with a third party.
V. Advertising expenses
To get customers to visit an e-commerce site and make a purchase involves heavy
cost due to advertisement and marketing. This cost could continue to be significant
till we see a consolidation of the e-commerce sector in India. Considering that such
advertising and marketing costs are significant, the accounting challenge around
such expenses is that most companies would like to defer such costs in their
financial statements. Under Indian GAAP, all such advertising expenses are
recognized as an expense when it is incurred.
VI. Other business environment related issues
? Cash handling: Cash handling is one critical issue that affects most of the
e-commerce companies. A lot of companies allow customers to pay cash on
delivery. Accordingly, handling of large volumes of cash, which is
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inherently susceptible to pilferage, can be a constant challenge. It can,
however, be curtailed by effective monitoring and segregation of duties.
Many companies may institute controls to ensure cash deposits are made
daily with effective receipts and checklists. The aid of an effective internal
audit would be critical. The company could also institute simple but
effective steps like surprise cash counts, expanding cash insurance, etc. for
controlling this risk.
? Compliance: There are stringent compliance requirements if an e-
commerce is in the business of e-retail. The Indian laws have not always
kept pace with the technological advancement of the sector. Hence, it is of
utmost importance that a company operating in the e-commerce space is
registered with the appropriate regulatory authorities like Reserve Bank of
India, etc. Additionally, it is noted that a large number of the e-retail
companies are funded by Private Equity/Venture Capitalists, who are
foreign investors and hence compliance with Foreign Exchange
Management Act (FEMA) is of supreme importance. Under FEMA, e-
commerce activities refer to the activity of buying and selling by a company
through the e-commerce platform. Such companies would engage only in B
2 B e-commerce and not in retail trading, inter-alia implying that existing
restrictions on FDI in domestic trading would be applicable to e-commerce
as well.
Companies in the e-commerce sector would have to constantly monitor these
challenges and watch out for relevant guidance and practice as they emerge.
The companies may also have to continuously assess their accounting system
capabilities, resource requirements, etc. to keep speed with changing industry,
regulations.
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5. CASE STUDY
CASE:
AL & CD Ashley (Pty) Ltd is a privately owned fourth generation family business
based in Cape Town, South Africa.
AL & CD Ashley has specialized in the import and distribution of premium quality
kitchenware and houseware brands to the Southern African market, with a range of
customers across South and Southern Africa.
AL & CD Ashley supplies to a broad customer base including, the leading
traditional homeware groups, supermarket groups, department stores, hotels,
restaurant & catering supply businesses, hardware stores, independent home and
appliance stores and the burgeoning online retail sector.
AL & CD Ashley found it time consuming and difficult to update their retailers with
availability and pricing, at any given time. This meant manually responding to
customer requests to provide price lists and stock updates. Staff also had to
manually update their websites and catalogues with product availability and prices
when these changed, which they did frequently. AL & CD Ashley use a Sage Pastel
product to manage their inventory. Their staff are trained in using this software, to
move their entire system over to something else was not an option.
Another problem was making sure their warehouse and inventory systems could
speak to each other. Order fulfillment needed to be automated to eliminate potential
human error such as data capture issues and to speed up order processing and
shipping.
THE SOLUTION:
Stock2Shop created a solution for AL & CD Ashley using our innovative
integration platform, coupled with some bespoke development.
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? Public facing website
SAVES STAFF SEVERAL HOURS A WEEK
Stock2Shop saves staff several hours a week by automating repetitive manual tasks
like updating inventory levels, product images and descriptions.
We designed a website based on the Shopify ecommerce platform for AL & CD
Ashley. Stock2Shop automatically synchronies with and tells Shopify what
products to display based on availability in the AL & CD Ashley Sage Pastel
system. It also sends the product images and descriptions to Shopify. The website
itself does not sell to the public, but has an up-to-date list of the brands categories
and products offered with a simple registration process for retailers and business
customers to sign up with AL & CD Ashley.
? B2B shopping cart
SAVES STAFF HOURS OF WORK ELIMINATES DATA CAPTURE ERRORS
ON ORDERS
Stock2Shop saves staff hours of work and increases accuracy by automating
product, inventory and sales order creation. Using the Stock2Shop business-to-
business shopping cart allows AL & CD Ashley to share their product data with
their customers. It means their customers can order directly off this system and sales
orders are then created automatically in their Sage Pastel accounting system. They
have the flexibility to create different customer accounts based off the accounting
system customer accounts. This means their customers only see the products they
need to have access to, with the appropriate price. Stock2Shop makes sure the
product prices, stock levels, product descriptions and images are updated near real
time.
? Order Fulfillment
ENSURES ORDERS ARE QUICKLY AND CORRECTLY DISPATCHED.
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Stock2Shop developed a bespoke solution that integrates AL & CD Ashley’s Sage
Pastel product with their 3rd party warehousing and logistics partner, Aramex.
When orders are raised in Pastel, they can easily, at the click of a button, be sent to
Aramex via the Aramex EDI gateway for fulfillment. This is particularly important
on large orders where data capture issues are bound to happen. It’s a huge time
saver, eliminating the need to manually capture each order twice, once in Pastel and
then again with Aramex.
? Online retailers
SAVES STAFF SEVERAL HOURS A WEEK.
AL & CD Ashley’s products are sold on South Africa’s largest online retailers,
amongst them Yuppiechef and Kalahari. Stock2Shop provides a way to
automatically provide these retailers with product availability and pricing at defined
intervals. This that means retailers have up-to-date stock information and ensures
they do not let their customers down should they order a product that is out of stock.
Additionally it saves time for AL & CD Ashley and their retail partners, as the
product availability is automatically updated on their websites.
? E-commerce
INTEGRATES WITH MULTIPLE ECOMMERCE PLATFORMS.
Certain products are sold through manufacturer branded websites, which required
integration with the Magento ecommerce software. Stock2Shop connects Magento
with their Sage Pastel system. This means orders are raised directly into Pastel and
then fulfilled. It also means that stock levels and pricing are correct on the website
at all times.
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6. Conclusion
? Few people will deny that early growth in EC was fuelled by media hype.
How else would you explain multi-million dollar financing packages based
on business plans that had been drawn up on cocktail napkins and domain
names that were “worth millions”? For better or worse, those days are
behind us and the growth in EC today is being fuelled by sound business
principles. Organizations are using EC to improve their bottom line by
reducing costs and by increasing sales. Of course, it’s not as simple as
creating a flashy web site either. Just like in the “real world,” there’s a lot of
planning that needs to be done before the doors ever open.
? In general, today’s businesses must always strive to create the next best thing
that consumers will want because consumers continue to desire their
products, services etc. to continuously be better, faster, and cheaper. In this
world of new technology, businesses need to accommodate to the new types
of consumer needs and trends because it will prove to be vital to their
business’ success and survival. E-commerce is continuously progressing
and is becoming more and more important to businesses as technology
continues to advance and is something that should be taken advantage of
and implemented. From the inception of the Internet and e-commerce, the
possibilities have become endless for both businesses and consumers.
Creating more opportunities for profit and advancements for businesses,
while creating more options for consumers. However, just like anything
else, e-commerce has its disadvantages including consumer uncertainties,
but nothing that cannot be resolved or avoided by good decision-making and
business practices. Every day more people connect to the Internet and grow
increasingly comfortable with digital transactions. Business will alter more
in the next ten years than it has in the last 50. It is estimated that total
transactions over the Internet will rise to nearly $2,000 billion within three
25
years and over $3,500 billion within five. The successful companies of the
future will be those that take e-commerce seriously, dedicating sufficient
resources to its development. Companies that use it as a reason for
completely re-designing their business processes are likely to reap the
greatest benefits.
26
7. Bibliography
?http://ocw.metu.edu.tr/pluginfile.php/352/mod_resource/content/0/Lec
tuLe_3.pdf
?https://www.uop.edu.jo/download/research/members/introduction.pdf
?https://www.pipemonk.com/blog/ecommerce-accounting-best-
practices/
?https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/
AccounAcco-Update/Documents/AAU-February-2014.pdf
?http://www.clemson.edu/uced/working_papers/uced_100701.pdf
?http://www.thecasecentre.org/educators/casemethod/resources/freecas
es/stanfstanfordfree#ecommerce
?http://www.k-
ecommerce.com/medias/Living_Essentials_Case_Study.pdf
?http://www.practicalecommerce.com/articles/3616-Simplified-
Accounting-for-Ecommerce-Merchants
?http://blog.bigcommerce.com/e-commerce-accounting-faqs-part-1/
?https://www.cga-
pdnet.org/Non_VerifiableProducts/ArticlePublication/E-Commerce/E-
Commerce_p1.pdf
?http://digitalmarketingphilippines.com/top-8-common-e-commerce-
seo-problems-and-solutions/
?http://firstmonday.org/ojs/index.php/fm/article/view/601/522
?https://steph31719.wordpress.com/2009/11/17/conclusion-in-progress/
doc_709243026.pdf
1. Introduction to E-Commerce
Internet Commerce
By Internet commerce, we mean the use of the global Internet for purchase and
sale of goods, services, including service and support after sale. Internet commerce
brings some new technology and new capabilities to business, but the fundamental
business problems are those that merchants have faced for hundred - even thousands
- of years: you must have something to sell, make it known to potential buyers,
accept payment deliver the goods or services, and provide appropriate service after
the sale. The Internet is an efficient mechanism for advertising and distributing
product information. It’s enabling complete business transactions. Internet
commerce is one type of the more general “electronic commerce”.
E-commerce
E-commerce is buying and selling goods and services over the Internet. Ecommerce
is part of e-business. E-business is a structure that includes not only those
transactions that center on buying and selling goods and services to generate
revenue, but also those transactions that support revenue generation. These
activities include generating demand for goods and services, offering sales support
and customer service, or facilitating communications between business partners. By
the help of the flexibility offered by computer networks and the availability of the
Internet, E-commerce develops on traditional commerce.
E-commerce creates new opportunities for performing profitable activities online.
It promotes easier cooperation between different groups: businesses sharing
information to improve customer relations; companies working together to design
and build new products/services; or multinational company sharing information for
a major marketing campaign.
2
The followings are the business uses of the Internet. These services and capabilities
are a core part of a successful e-commerce program. They are either parts of a value
chain or are included as supporting activities:
? Buying and selling products and services
? Providing customer service
? Communicating within organizations
? Collaborating with others
? Gathering information (on competitors, and so forth)
? Providing seller support
? Publishing and distributing information
? Providing software update and patches
E-Commerce stands for electronic commerce and caters to trading in goods and
services through the electronic medium such as internet, mobile or any other
computer network. It involves the use of Information and Communication
Technology (ICT) and Electronic Funds Transfer (EFT) in making commerce
between consumers and organizations, organization and organization or consumer
and consumer. With the growing use of internet worldwide, Electronic Data
Interchange (EDI) has also increased in humungous amounts and so has flourished
e-commerce with the prolific virtual internet bazaar inside the digital world which
is righty termed as e-malls.
We now have access to almost every knick-knack of our daily lives at competitive
prices on the internet. No matter one is educated or illiterate, an urbane or a
countryman, in India or in U.K; all you need is an internet connection and a green
bank account. With e-commerce then, you can buy almost anything you wish for
without actually touching the product physically and inquiring the salesman n
number of times before placing the final order. Here is a beautiful picture depicting
how has human life evolved to adapt to the digital world and hence trading over the
internet. As seen, from pizza and potted plant to pair of shoes, we have everything
3
on sale on the internet available in tempting offers..!! Snapdeal.com, Amazon, eBay,
Naaptol, Myntra, etc. are some of the most popular e-commerce websites.
Airline and travel tickets, banking services, books, clothing, computer hardware,
software, and other electronics, flowers and gifts are some popular products and
services that can be purchased online. Several successful e-businesses have
established their business models around selling these products and services.
Ecommerce has the potential to generate revenue and reduce costs for businesses
and entities. Marketing, retailers, banks, insurance, government, training, online
publishing, travel industries are some of the main recipients of e-commerce. For
instance, banks use the Web for diverse business practices and customer service.
4
2. Retail/E-commerce Accounting
While the virtual world of e-commerce has expanded the opportunities for
traditional and online retailers, the unique challenges of integrating front and back
office systems and managing the resulting data can be a daunting task.
Intelligent planning and technical proficiency are required as each retail book-
keeping/e-commerce book-keeping solution must be custom-designed for the
specific needs of each business configuration.
Our extensive history with the brick-and-mortar and online retail industries allows
us to analyze your current processes and recommend thoughtful technologies that
increase efficiency and accuracy. Once we understand how the various segments of
your business relate to one another and build an integrated retail
bookkeeping/ecommerce bookkeeping system to provide the necessary operational
details, we can further consult on how to make the most of what the data is telling
us.
? Sales and Data Entry for Retailers
Because virtual and physical inventories can have varying margins and origins, it is
important to properly classify and track the performance of each product to identify
winners. Our sales data entry focuses on analyzing relative performance for
maximum profitability. Through the use of custom segmentation, retailers are able
to quickly identify and feature high volume and high profit items and minimize or
remove items from their inventory that aren't selling. In addition, our sales systems
deliver instant feedback on the various marketing efforts. The faster you learn the
metrics of what's working and what's not, the faster you are able to push on
successful campaigns and cut non-performers.
Lescault and Walderman recognizes the importance of sales and marketing data
5
entry. We consult with our clients to create the unique classifications and track the
categorical details that ensure the most efficient use of the data itself.
? Accounts Payable Management for Retailers
Considering the significant number and variety of sources for your retail business,
maintaining an efficient and accurate accounts payable system is critical to the
health of your ongoing business relationships. This starts with an organized system
of entry, involves diligent oversight and ends with a system of checks and balances.
A solid AP system with proper oversight is highly effective at preventing common
mistakes and errors. This can quietly represent significant savings for your
business. In addition, checks and balances are instrumental in raising red flags that
alert owners to problem activity. The earlier this activity is identified and rectified,
the lower the cost and impact to your business.
Because of our experience with both physical and virtual retail businesses, Lescault
and Walderman is able to build proven accounts payable systems, while offering
unique shortcuts and time-savers that will help to streamline the accounts payable
management in your retail/e-commerce business.
? Account Reconciliation for Retailers
Employing an impartial third party to provide account reconciliation can be one of
the most insightful and beneficial decisions you can make for your business. From
increased visibility to more efficient risk management, account reconciliation offers
an abundance of benefits.
Oftentimes, a fresh set of eyes can identify obvious issues that don't stand out to
daily users who might be too familiar with the workflow and data passing through
their system. The reconciliation process, when properly implemented, can provide
a wealth of useful information on the true health of your business. Using a
6
consultant to perform the account reconciliation, retailers are able to focus on
implementing appropriate management methods.
We've found that experience is truly the greatest teacher when it comes to account
reconciliation, and we lean heavily on ours to share what we've learned with our
clients. We've encountered a wide variety of unique and interesting issues in the
performance of our reconciliation processes and are ready to help serve and protect
your business.
? Financial Reporting for Retailers
Financial statements (balance sheets, profit and loss statements) are one of the most
essential components of your retail/e-commerce book-keeping system. They are the
primary method for communicating the financial health of your retail business to
outside parties.
When financial reporting is timely, business owners are able to focus on current
issues and make the most of their financial information systems. In addition, they
are able to more effectively plan for the future. The higher the quality of the
financial reports and the information contained therein, the greater the effectiveness
of the plans that result from them.
We see financial reporting as one of the most important services that we offer our
customers. When built on accurate data and prepared for simple but thorough
analysis, these prepared documents can become the difference between success and
failure.
7
3. Accounting for E-commerce Businesses
Accounting plays a crucial role in tracking the health and defining the roadmap for
your e-commerce business. When accounting for your online store, there are some
very specific actions needed to ensure accurate and timely reports.
If you are a store owner or an accountant new to e-commerce, there will be a
learning curve. No worries. To get you started here’s a comprehensive introductory
guide. Let’s look at six of the best accounting practices to track the growth of your
online store:
A. Record your invoices with payments
Bookkeeping is often defined in simple terms as the practices of keeping daily
records of your financial transactions. For your online store, the ‘Order’ coupled
with the linked ‘Payment’ is your transaction. There are primarily two ways to go
about it:
1. Record every transaction: This is one of the most recommended practices
if you have 1-2 selling channels. When you are in the early growth stages of
your business, it is important to track sales by customer name and other
individual order level details.
2. Record summary transactions daily/weekly: Expert CPAs and CFAs in
the e-commerce accounting space advice this if you are doing multi-channel
sales. At this level, your accounting application doesn’t meet your CRM
(Customer Relationship Management) needs. So a summary transaction of
your sales by channel should meet your needs. There is one important step
you should take when recording your invoices in apps like QuickBooks
Online or Xero. Link it with the appropriate payment you received from the
customer. Without this step, you have the chance of double counting sales.
8
B. Record Inventory on hand
Inventory is one of the primary business assets in your e-commerce business. The
inventory count tells your store’s Goods on hand. Businesses constantly strive to
perfect inventory management to avoid lost sales, disruptions in production, high
holding costs, etc.
Note: Inventory Tracking is available with ‘QuickBooks Online Plus’ plan only. As
of today, Xero supports Inventory Quantity tracking.
C. Track your Cost of Goods Sold (COGS)
When acquiring inventory to sell on your website, you are exchanging cash for
inventory asset. The challenge lies in the fact that the cost cannot be deducted till
you sell. When it sells, your COGS should be updated appropriately. COGS
reporting is a way to track your costs associated with each item that sells from your
store.
Here’s a simple formula to calculate your Cost of Goods Sold:
9
Sample Template:
Why you need it:
Getting the pricing right is crucial to building a profitable and sustainable business.
Once you know the actual COGS, you should be able to tweak and optimize the
selling price towards it.
However, businesses calculate COGS at a very basic level and do not count for
indirect costs in acquiring inventory. Make sure you look beyond just how much
you paid for the goods. Have you included shipping costs? What about the
packaging costs for all your products? A comprehensive and accurate COGS report
ensures that you are not overstocking and your expenses are under check.
D. Capture Sales Tax liabilities
Most ecommerce sellers we come across go through a learning curve as they build
their business. With respect to bookkeeping, accounting for Sales Tax liabilities is
one of the biggest hassles. Different states have different rates and so do multiple
counties and municipals. Are you outside US/Canada? Consider the VAT on your
Orders.
E-commerce tools like Shopify and Big commerce will calculate it automatically
for you when a customer orders a product from your site. The next step is to record
the same in your accounting application. The Sales Tax should be recorded at the
10
Invoice level for accurate reports. Applications like QuickBooks Online or Xero
will let you run reports to show your liabilities to State, County and Municipal Tax
agencies.
E. Reconcile all your accounts
Bank reconciliation is the process of matching transactions you’ve got recorded in
QuickBooks Online/Xero to what you’ve got in the bank. It is a critical step to avoid
double counting and to ensure that your bottom line is accurate.
If you using an e-commerce platform like Shopify, you need to consider the
payment transaction fee charged by the payment processor (Shopify, PayPal etc.)
To do this manually, you need to create a ‘Credit Note’ at the Invoice level before
linking it to the respective payment from the customer.
F. Automate
All of the above mentioned accounting practices can be done manually. The
constraint though is time. Also, with manual efforts the perils of errors and double
data entry come along there are tools to automate most of the time consuming
practices for your e-commerce store. Top providers like Shopify and Big commerce
have App Stores to extend to automate business processes. Pipemonk is a 5-star
rated and certified app in Shopify & Intuit. Our mission is to save you 100+ hours
a month in manual accounting.
G. Profit and Loss Report/Income Statement
Simply put, this report gives the profit or loss for a given time period.
Every income statement has a top line – representing the “gross revenue” or “sales”;
and a bottom line – representing the actual “net profit/loss” or “net income”.
11
Sample Template:
Why you need it:
Your business earns a net income when your revenue from product sales exceeds
expenses. A positive “net income” effectively means you have increased your assets
and the revenue from those assets outweighs the costs of acquiring the assets. An
Income Statement lets you evaluate the profitability, performance and lets you
assess the risk for any investor or creditor in your online venture.
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H. Balance Sheet
A Balance Sheet tells you the actual value/worth of your business. It lists down your
Assets, Liabilities, and Equity.
Equity is calculated as:
Sample Template:
Why you need it:
With an accurate Balance Sheet in place, you can calculate two important metrics
to measure the health of your business:
13
i) Quick Ratio: It is the measure of short term health of your business. The higher
the quick ratio, the better.
Here’s the formula to calculate it:
If the ratio for you is 1:1, you should be able to pay off all the liabilities / bills on
time. Raise a red flag if the Quick Ratio is around 4:1 is not good for a business as
this implies that the business has 4 times idle assets against the requirement of 1.
ii) Current Ratio: Current Ratio is the ability of your e-commerce business to pay
current liabilities with current assets. It can be calculated as follows:
Make sure you do everything in your capacity to keep the Current Ratio above 1.
Though a ratio less than 1 does not immediately signal bankruptcy, it is a signal to
correct the course.
The above accounting practices ensure that your bookkeeping is up to date and
accurate.
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4. Accounting Issues Faced by the E-commerce
Industries
E-Commerce, e-tail, e-retail, dot com, online shopping, etc., call it what you want,
but they are here to stay. You can now buy everything from luxury products to
vegetables online. As the Indian economy expands, consumption is also expected
to rise and this sector is expected to grow as well. As the e-commerce industry
emerges, relatively little industry specific accounting guidance is available that
addresses some of the accounting challenges faced by this sector.
We have sought to discuss a few sector specific accounting issues in more detail,
focusing on the most significant areas which are commonly faced by the e-
commerce industry across the world.
I. Revenue recognition
E-Commerce companies often are valued based on revenue multiples and hence, it
is one of their most important metrics. Revenue is an area which is susceptible to
misuse and fraud. Therefore, it is subject to constant scrutiny by the regulators. This
accounting issue is primarily to determine timing of revenue recognition and
presentation (gross vs. net). Most of the e-commerce companies either accept
payments online through credit cards, internet banking, debit cards or cash on
delivery. Additionally, in most of these companies, delivery is the responsibility of
the company and hence, it becomes important to determine on when does the ‘risk
and rewards’ get transferred to the customer. It is to be noted that this issue is
relevant for both B 2 C (Business to Consumer) and B 2 B (Business to Business)
models. One of the indicators to determine the timing of revenue recognition is to
know who bears the insurance cost/ risk. In practice, many of the large e-retail
companies enter into agreements with logistic providers who are willing to bear
insurance cost and risk of delivery and under such contracts, companies would
recognize revenue on dispatch of goods from the warehouse. Sometimes, cost of
15
delivery is built in to the pricing of the product and the cost of transport is borne by
the e-commerce entity; then the risk of delivery and loss is still with the e-commerce
company. In such cases, it may be appropriate to recognize revenues only once the
products are delivered to the customer. Additionally, in practice, an option is given
to the customers to return the goods sold; then it is important to evaluate each such
offer more specifically to understand the facts and circumstances and their
repercussions on accounting. Generally, when the buyer has a right of return and
there is uncertainty about the possibility of return, revenue is not recognized until
the shipment has been accepted by the customer or the goods have been delivered
and the time period for rejection has elapsed.
An entity considers historical experience in assessing the possibility of return. If,
based on past experience, the entity can make a reliable estimate of the amount of
goods that will be returned, then it would be appropriate to recognize revenue for
the amount that is expected to be received for items that are not returned (assuming
that the other conditions for revenue recognition are met). Due to the current legal
framework in India, a B 2 B entity may not be allowed to make a sale to retail
customers and is required to sell its goods to B 2 C companies. This relationship
could have an impact on the presentation of revenues in the books of accounts of B
2 C and B 2 B on a gross or net basis. Under Indian GAAP, the Technical Guide on
Accounting Issues in the Retail Sector is issued by the Institute of Chartered
Accountant of India (ICAI), provides guidance on presentation of revenues.
As per the Technical Guide, some of the factors that indicate that an entity is acting
as a principal in transactions could include (indicative list only):
? The customer understands that the entity is acting as the primary obligor in
the arrangement
? The entity is able to set the selling price with the customer
? The entity has inventory risk
? The entity performs part of the services provided or modifies the goods
supplied
? The entity has or assumes the credit risk associated with the transaction.
16
Revenue represents the amount receivable by an entity for its own account.
Therefore, for a principal, revenue should be presented at its gross amount and is
measured before deducting related costs such as costs for materials and salaries. In
an agency relationship, the amounts collected on behalf of and passed on to the
principal is not revenue of the agent. The revenue of the agent is the amount of
commission, plus any other amount charged by the agent to the principal or other
parties. The principal in an agency relationship recognizes the gross amount charged
to the ultimate customer as revenue. Commission paid to the agent is accounted for
as an expense by the principal. Determining whether an entity is acting as an agent
or principal is based on an evaluation of the risks and responsibilities taken by the
entity, including factors as mentioned above such as inventory risk and
responsibility for the delivery of goods or services. A common example in this field
is that an e-commerce company purchases traded goods from a wholesaler. E-
Commerce Company generally would sell these goods to the end customer and may
or may not carry the associated inventory risk as it purchases goods from the
wholesaler only when it receives orders from the end customer. However, it may
bear the risk of those inventory items that have been returned by the customers.
In such a scenario, the e-commerce company does not seem to bear significant
inventory risk, however, it may bear the following:
? Credit risk
? is primarily responsible for providing the goods to the customer, i.e.,
fulfilling the order
? Direct pricing discretion
? Discretion in selecting the supplier/ wholesaler.
Therefore, in this case, the e-commerce company should reflect gross billing to its
customers as its revenue.
17
II. Taxation
India has a myriad of taxes. Hence, the companies operating in the e-commerce
industry need to have a strong taxation team to ensure that they are in compliance
with the various tax regulations. The Internet and new communication technologies
have introduced a new channel through which sales may occur. Some of the taxation
challenges may arise as a result of the blurring of the distinctions between traditional
commerce and commerce involving digitized products. It is a matter of debate,
however, as to whether these new channels create new products. Some believe that
delivery through these channels alters the character of a product to such a degree
that it must be considered a wholly new product, distinguishable from that delivered
through traditional channels, and therefore, should be treated as unique for tax
purposes.
Direct taxation: One of the keenest legal issues related to e-commerce remains to
be taxation of revenues generated on the web. Traditionally, taxing rights on
business profit lies with the source country and a business is said to have a source
in a country if it has a ‘Permanent Establishment’ (PE) in that country. PE by
definition relies on a fixed place of business. In e-commerce, a non-resident
business does not need a fixed place of business in another country. Therefore, the
concept of PE is not easily applied to e-commerce. Accordingly, as e-commerce
companies explore businesses across international borders, this is expected to be
one of the most important issues to be dealt with regard to the taxation. It has to be
noted that national governments and international organizations (like Organization
for Economic Co-operation and Development (OECD)) have responded to the
challenges posed by e-commerce transactions. In India, the Central Board of Direct
Taxes had constituted a High Powered Committee to discuss the taxation of e-
commerce transactions. It appears that current direct tax laws (including treaties)
may not be capable of addressing fully the novel issues brought on by e-commerce.
Consensus is yet to emerge amongst major countries on this area.
Inter-state taxes in India: There are challenges with respect to incidence of inter-
state taxes (i.e., where the tax incidence is on the end consumer like sales tax, value-
18
added tax, etc.). For example, an e-commerce company based in Karnataka takes
an order from a customer in Maharashtra, while goods are supplied from a vendor
in West Bengal, the question: the inter-state taxes need to be paid by the vendor in
West Bengal; or the e-commerce company in Karnataka, is not free of doubt. The
tax authorities in India do not seem to have a settled position on these issues.
Companies may need to consult with their tax specialists as the tax liabilities often
have to be evaluated on a case to case basis.
III. Inventory accounting
In the initial years of a setup, e-commerce companies that cater to retail customers
and often carry significant inventory whilst focusing on increasing their revenues
through aggressive customer acquisition. However, one of the key challenges for
operational success is their inventory management process and ability to effectively
manage a lean working capital. Such companies may have built-up inventory in the
hope to achieve higher volumes, which is expected to compensate for the low
margin on sales. Additionally, a constant change in product portfolio and freebies
could lead to challenges in the management of the inventory records. If an entity
does not have a strong control environment to monitor its inventory, then such an
entity may face a write down of inventory balances as at the reporting date. Further,
ascertaining cost versus net realizable value, whichever is lower, becomes a
challenge as the margins on such product portfolios are slim, which may add to the
inventory write down provision. Hence, it becomes extremely important to
maintain, monitor and control inventory for an effective inventory management.
IV. Logistics
Many companies believe that the biggest impediment is unreliable third-party
logistics and delays in delivery due to poor surface transport. It is important to have
19
a well drafted agreement with logistics and reverse logistics providers as the
following accounting aspects could have an impact:
• Accounting for revenues: Certain logistics provider take over the risk and
rewards when such goods are collected from the companies’ warehouse, which
could remove the delay and hassle of evidencing delivery for revenue recognition.
• Mode of payment: Certain logistics providers collect cash from the respective
customers and aggregate the same and deposit it into the company’s bank account,
by which the company could mitigate its risk associated with cash handling.
• Cost recognition: There are various ways a logistics provider is paid, per piece
basis, monthly based on volumes, etc. It is critical that companies understand such
arrangements as the related volume discount earned or monthly charges paid would
need to be accounted appropriately.
In addition to the above, certain logistics providers, also provide warehousing and
inventory management. It is important for companies to have an effective control
and monitoring mechanism when goods are with a third party.
V. Advertising expenses
To get customers to visit an e-commerce site and make a purchase involves heavy
cost due to advertisement and marketing. This cost could continue to be significant
till we see a consolidation of the e-commerce sector in India. Considering that such
advertising and marketing costs are significant, the accounting challenge around
such expenses is that most companies would like to defer such costs in their
financial statements. Under Indian GAAP, all such advertising expenses are
recognized as an expense when it is incurred.
VI. Other business environment related issues
? Cash handling: Cash handling is one critical issue that affects most of the
e-commerce companies. A lot of companies allow customers to pay cash on
delivery. Accordingly, handling of large volumes of cash, which is
20
inherently susceptible to pilferage, can be a constant challenge. It can,
however, be curtailed by effective monitoring and segregation of duties.
Many companies may institute controls to ensure cash deposits are made
daily with effective receipts and checklists. The aid of an effective internal
audit would be critical. The company could also institute simple but
effective steps like surprise cash counts, expanding cash insurance, etc. for
controlling this risk.
? Compliance: There are stringent compliance requirements if an e-
commerce is in the business of e-retail. The Indian laws have not always
kept pace with the technological advancement of the sector. Hence, it is of
utmost importance that a company operating in the e-commerce space is
registered with the appropriate regulatory authorities like Reserve Bank of
India, etc. Additionally, it is noted that a large number of the e-retail
companies are funded by Private Equity/Venture Capitalists, who are
foreign investors and hence compliance with Foreign Exchange
Management Act (FEMA) is of supreme importance. Under FEMA, e-
commerce activities refer to the activity of buying and selling by a company
through the e-commerce platform. Such companies would engage only in B
2 B e-commerce and not in retail trading, inter-alia implying that existing
restrictions on FDI in domestic trading would be applicable to e-commerce
as well.
Companies in the e-commerce sector would have to constantly monitor these
challenges and watch out for relevant guidance and practice as they emerge.
The companies may also have to continuously assess their accounting system
capabilities, resource requirements, etc. to keep speed with changing industry,
regulations.
21
5. CASE STUDY
CASE:
AL & CD Ashley (Pty) Ltd is a privately owned fourth generation family business
based in Cape Town, South Africa.
AL & CD Ashley has specialized in the import and distribution of premium quality
kitchenware and houseware brands to the Southern African market, with a range of
customers across South and Southern Africa.
AL & CD Ashley supplies to a broad customer base including, the leading
traditional homeware groups, supermarket groups, department stores, hotels,
restaurant & catering supply businesses, hardware stores, independent home and
appliance stores and the burgeoning online retail sector.
AL & CD Ashley found it time consuming and difficult to update their retailers with
availability and pricing, at any given time. This meant manually responding to
customer requests to provide price lists and stock updates. Staff also had to
manually update their websites and catalogues with product availability and prices
when these changed, which they did frequently. AL & CD Ashley use a Sage Pastel
product to manage their inventory. Their staff are trained in using this software, to
move their entire system over to something else was not an option.
Another problem was making sure their warehouse and inventory systems could
speak to each other. Order fulfillment needed to be automated to eliminate potential
human error such as data capture issues and to speed up order processing and
shipping.
THE SOLUTION:
Stock2Shop created a solution for AL & CD Ashley using our innovative
integration platform, coupled with some bespoke development.
22
? Public facing website
SAVES STAFF SEVERAL HOURS A WEEK
Stock2Shop saves staff several hours a week by automating repetitive manual tasks
like updating inventory levels, product images and descriptions.
We designed a website based on the Shopify ecommerce platform for AL & CD
Ashley. Stock2Shop automatically synchronies with and tells Shopify what
products to display based on availability in the AL & CD Ashley Sage Pastel
system. It also sends the product images and descriptions to Shopify. The website
itself does not sell to the public, but has an up-to-date list of the brands categories
and products offered with a simple registration process for retailers and business
customers to sign up with AL & CD Ashley.
? B2B shopping cart
SAVES STAFF HOURS OF WORK ELIMINATES DATA CAPTURE ERRORS
ON ORDERS
Stock2Shop saves staff hours of work and increases accuracy by automating
product, inventory and sales order creation. Using the Stock2Shop business-to-
business shopping cart allows AL & CD Ashley to share their product data with
their customers. It means their customers can order directly off this system and sales
orders are then created automatically in their Sage Pastel accounting system. They
have the flexibility to create different customer accounts based off the accounting
system customer accounts. This means their customers only see the products they
need to have access to, with the appropriate price. Stock2Shop makes sure the
product prices, stock levels, product descriptions and images are updated near real
time.
? Order Fulfillment
ENSURES ORDERS ARE QUICKLY AND CORRECTLY DISPATCHED.
23
Stock2Shop developed a bespoke solution that integrates AL & CD Ashley’s Sage
Pastel product with their 3rd party warehousing and logistics partner, Aramex.
When orders are raised in Pastel, they can easily, at the click of a button, be sent to
Aramex via the Aramex EDI gateway for fulfillment. This is particularly important
on large orders where data capture issues are bound to happen. It’s a huge time
saver, eliminating the need to manually capture each order twice, once in Pastel and
then again with Aramex.
? Online retailers
SAVES STAFF SEVERAL HOURS A WEEK.
AL & CD Ashley’s products are sold on South Africa’s largest online retailers,
amongst them Yuppiechef and Kalahari. Stock2Shop provides a way to
automatically provide these retailers with product availability and pricing at defined
intervals. This that means retailers have up-to-date stock information and ensures
they do not let their customers down should they order a product that is out of stock.
Additionally it saves time for AL & CD Ashley and their retail partners, as the
product availability is automatically updated on their websites.
? E-commerce
INTEGRATES WITH MULTIPLE ECOMMERCE PLATFORMS.
Certain products are sold through manufacturer branded websites, which required
integration with the Magento ecommerce software. Stock2Shop connects Magento
with their Sage Pastel system. This means orders are raised directly into Pastel and
then fulfilled. It also means that stock levels and pricing are correct on the website
at all times.
24
6. Conclusion
? Few people will deny that early growth in EC was fuelled by media hype.
How else would you explain multi-million dollar financing packages based
on business plans that had been drawn up on cocktail napkins and domain
names that were “worth millions”? For better or worse, those days are
behind us and the growth in EC today is being fuelled by sound business
principles. Organizations are using EC to improve their bottom line by
reducing costs and by increasing sales. Of course, it’s not as simple as
creating a flashy web site either. Just like in the “real world,” there’s a lot of
planning that needs to be done before the doors ever open.
? In general, today’s businesses must always strive to create the next best thing
that consumers will want because consumers continue to desire their
products, services etc. to continuously be better, faster, and cheaper. In this
world of new technology, businesses need to accommodate to the new types
of consumer needs and trends because it will prove to be vital to their
business’ success and survival. E-commerce is continuously progressing
and is becoming more and more important to businesses as technology
continues to advance and is something that should be taken advantage of
and implemented. From the inception of the Internet and e-commerce, the
possibilities have become endless for both businesses and consumers.
Creating more opportunities for profit and advancements for businesses,
while creating more options for consumers. However, just like anything
else, e-commerce has its disadvantages including consumer uncertainties,
but nothing that cannot be resolved or avoided by good decision-making and
business practices. Every day more people connect to the Internet and grow
increasingly comfortable with digital transactions. Business will alter more
in the next ten years than it has in the last 50. It is estimated that total
transactions over the Internet will rise to nearly $2,000 billion within three
25
years and over $3,500 billion within five. The successful companies of the
future will be those that take e-commerce seriously, dedicating sufficient
resources to its development. Companies that use it as a reason for
completely re-designing their business processes are likely to reap the
greatest benefits.
26
7. Bibliography
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tuLe_3.pdf
?https://www.uop.edu.jo/download/research/members/introduction.pdf
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?https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/
AccounAcco-Update/Documents/AAU-February-2014.pdf
?http://www.clemson.edu/uced/working_papers/uced_100701.pdf
?http://www.thecasecentre.org/educators/casemethod/resources/freecas
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?http://www.k-
ecommerce.com/medias/Living_Essentials_Case_Study.pdf
?http://www.practicalecommerce.com/articles/3616-Simplified-
Accounting-for-Ecommerce-Merchants
?http://blog.bigcommerce.com/e-commerce-accounting-faqs-part-1/
?https://www.cga-
pdnet.org/Non_VerifiableProducts/ArticlePublication/E-Commerce/E-
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?http://digitalmarketingphilippines.com/top-8-common-e-commerce-
seo-problems-and-solutions/
?http://firstmonday.org/ojs/index.php/fm/article/view/601/522
?https://steph31719.wordpress.com/2009/11/17/conclusion-in-progress/
doc_709243026.pdf