Accounting for Online Sellers
Updated : 26-Nov-2022
If you’re an online seller on Amazon, you would be generating sales and refunds every month. You could also be generating business via B2B (business-to-business) versus B2C (business-to-customer) sales – the difference between these two business categories is that in B2B, you would get the customer’s GSTIN number as well, which would need to be recorded in your accounting tool.
Now, Amazon has made it dead easy for you to understand your tax returns – they provide a Merchant Tax Report, also called an MTR Report. There are two versions of this report – one each for the B2B and B2C sales that you do on Amazon.
A typical MTR Report looks like the one below. It has more than 80 columns, fulfilling the need of every accountant who wishes to add any detail regarding their transaction into their books.
Accounting for your Flipkart Business
Flipkart has also made excellent reporting systems, and their Sales Report has about 51 data points, that are more than enough for your accounting needs. Flipkart also provides extensive GSTR information that you can use to verify your tax returns on the GSTR filing portal.
Both the major marketplaces provide an in-depth analysis of the TCS (Tax Collected at Source), which is 1% of the total taxes you owe to the Government for the month. You can simply deduct this amount from the total taxes and pay the rest before the 10th of the next month.
Accounting for Marketplace Fulfilled versus Merchant Fulfilled Shipments
If you’re an FBA seller or an MFN seller on Amazon, you would know that Amazon processes these shipments differently. But the end results on the GSTR1 filing – it’s the same! So whether you deliver your shipments yourself or via the marketplace (Amazon/Flipkart, etc), all the data is present in the MTR or the Flipkart Sales Report in the exact same way. So there’s no need to worry about looking for alternate sources of data – download these reports and use them for your GSTR1 filing.
The frustrating process of Manual Accounting
Accounting is complex. Did you know that an ordinary sale voucher has a minimum of 45 data points? And this complexity is without taking into account inventory details such as batch number, warehouse, etc, which would increase the number of data points by another 10-15.
If you do your business accounting or have a bookkeeper, you should know this statistic – it takes an average of 4 minutes to fill out a sales voucher or a credit note accurately. And a day doesn’t go by in the life of a bookkeeper when he or she is not checking the tax analysis or the GSTR1 filing for errors.
Now say that you have about 1000 orders in a month (and maybe 50 refunds), for a total of 1050 transactions. It would take you approximately 4200 minutes (4 minutes per transaction) to enter your invoices into an accounting system such as Tally, QuickBooks or Zoho Books. This translates to roughly 70 hours. Add in another 10 hours for manual reconciliation and GSTR1 filing, that’s around 80 hours or 2 weeks of work (at 40 hours per week) for accounting alone; that’s to be done by the 10th of every month (when you have to file your GSTR1). And the process begins all over again for GSTR2 (which has to be filed before the 20th of every month). No wonder accounting is frustrating!
I’ve personally believed that book-keepers should be relieved of the manual labour of data entry and should be elevated to the role of guardians of book-keeping – where they ensure the accuracy and integrity of the accounting systems, not by entering data manually, but by having an overall ability to check if the data is wrong and have tools for corrective action. They need tools to automatically understand if their data is incorrect, where exactly the data is wrong and how to fix it, rather than trying to do everything from data input to data correction to overall integrity checks. It is absurd to see the level of apps in the market providing multiple reports to check data yet getting nowhere because there isn’t a single standardized system to ensure a rigorous data check.
If you’re doing manual accounting, here are the major pitfalls that you will encounter while filing the GSTR1:
First and foremost, ledger details themselves may be wrong. Many of Khaata’s customers will tell you how many problems they had because either the GST ledger was mapped to the wrong tax rate or the Shipping Expenses ledger was incorrectly configured. This leads to the maximum number of errors and once fixed, brings down the number of errors. So if you have GSTR1 errors, the first place to check should be ledger configurations.
The second most common source of errors is the mismatch in tax rates. Suppose your stock item was to be sold at 12% GST but was wrongly sold on the marketplace at 18% GST. The moment you enter the stock item in a sales voucher or a credit note, there will be an immediate mismatch because of the difference in tax that was charged by the marketplace versus what your accounting tool (Eg. Tally or QuickBooks) might expect. For these, it’s better to discuss with the marketplace so that they can make the necessary adjustments.
The third source of errors is rounding. Sometimes, vouchers won’t be created if the difference is more than 0.01. In such cases, the accounting tools provide a method to ignore roundoff errors.
Another common source of errors is the lack of HSN details in a stock item. This is fairly easy to handle as every marketplace provides these details. But beware, sometimes the items could be sold in another HSN rate bucket, so you would need to at least make a cursory check of your stock items and their correct tax rates.
I will be going into detail about each of these errors in the next blog posts soon.
At Khaata, we have taken significant care to eliminate all these issues. We couldn’t have done it ourselves – our customers were kind enough to tell us of these accounting quirks, and we responded in kind by fixing them automatically. The outcome is a smooth and accurate inflow of your Amazon or Flipkart data into your accounting tool (Tally ERP9).
Khaata can process approximately 1000 transactions (sales and credit notes) in about 10-14 minutes accurately so that your GSTR1 filing for at least your online transactions can be done in less than half a day (instead of taking 2 weeks as I mentioned before).