Transactional Accounting and Transaction Reporting for Online Sellers

What is transactional accounting? 

Transactional accounting is the process of recording every sale and refund in your accounting software as it happens with details like customer names, products purchased or returned, item counts, and sales tax. Everything that happens in a business is a transaction event representing cash, goods, and assets in and out.

Transactional accounting is more detailed than summary accounting. For example, business owners who sell primarily or exclusively on Amazon may use journal entries to record, track, and report cash and goods in and out.

Summary or journal entry accounting sees online payments, fees, and sales tax categorized and recorded at once (or in bulk), making it easier to reconcile accounts and close your books each month.

Overall, transactional accounting may be ideal for online sellers tracking product and item counts in QuickBooks because it allows them to report every transaction event and update inventory counts in real time. Transactional accounting is ideal for online sellers who use QuickBooks to track and manage items.

By updating every transaction event (sale, purchase, and adjustment) accurately in real time, sellers can maintain up-to-date item counts, effectively manage their stock levels, ensure timely restocking, and provide accurate information to customers.

Plus, they can generate comprehensive financial reports, monitor profitability, and make informed business decisions. 

How does transactional accounting work?

Transactional accounting works by manually entering or downloading individual transaction events to your QuickBooks or other accounting software as they occur. For the sake of this example, let’s explore how it works via automation.

When you first set up your automation tool, you’ll tell the solution how you want to sync or download transaction events to your accounting system. Most commonly, sellers download orders as sales receipts, though they can also download them as invoices and estimates.

Further customize the automation by specifying which bank accounts you want to deposit cash from the sale. Do the same for fees and expenses like sales tax, payment and marketplace fees, refunds, and discounts. Finally, this accounting method plays a critical role in keeping cash from each event segmented.

Because you’re doing transactional accounting, each transaction event will appear as a line item in your accounting system when you download or sync new orders (usually hourly, nightly, or, in some cases, every 15 minutes).

In summary, at least through automation, transactional accounting works by automatically sorting transaction events from each order to your accounting system. Going the automated route means you don’t have to separate events by hand and can avoid costly errors.

Plus, each time you sync or download transactions, your automation system may even use multichannel inventory sync capabilities to update counts for certain items wherever you sell them. This automatic process prevents you from stocking out or overselling and disappointing customers.

What is the role of transactional accounting in financial reporting?

Because transactional accounting provides a detailed breakdown of every transaction event as it happens, its role is critical to understanding your business's long-term financial health. Accurate, timely transaction records can give you a better look at which products are performing from popularity and profitability standpoints.

Transaction events are also the foundation for several financial statements, providing insights on cash flow, expenses, and production costs that can make or break your ability to entice investors or secure a loan.

Missing transaction details can lead to inaccurate or incomplete financial statements, revealing efficiency or due diligence gaps and compliance issues with generally accepted accounting principles. 

What is an example of an accounting transaction?

A transaction in accounting is any event wherein cash or goods enter or exit a business.

Transactions occur in ecommerce when you earn cash from the sale of a product or service, collect state or local sales tax, pay shipping, marketplace, or payment fees, and refund items. A single order may include various transaction events.

Transaction events may be sorted into seven categories:

1. Sales (including sales invoices, customer payments, and accounts receivable).
2. Purchases (including supplier purchase orders and accounts payable).
3. Cash (including cash receipts, disbursements, and balances).
4. Payroll (including employee payroll, salary expenses and benefits, and tax withholdings).
5. Inventory (including stock purchases and material or transportation costs).
6. Loans (including loan disbursements, repayments, and interest paid).
7. Expenses (including rent, utilities, salaries, office supplies, and business software subscriptions).

What is an example of transactional accounting?

Let's say you sell goods online and in a marketplace like Etsy. Each time a customer completes a purchase, you use an automation tool to download new orders to QuickBooks according to transactional accounting principles.

The tool deposits income or cash from a new store sale into whatever account you designate to income within your QuickBooks or accounting system. Meanwhile, the tool routes sales tax or payment fees into whatever account you designate for expenses.

Each transaction event becomes a line item in your QuickBooks for more detailed tracking. Your automation tool completes the same process on a schedule, so you never forget to add an order or sort expenses in QuickBooks manually.

Automation also helps you manage events such as refunds. Once you accept refund requests in your online store or Etsy account, your automation tool detects it the next time it syncs new events and updates that line item in QuickBooks as a credit memo or un-syncs the order.