Accounting Overview
E-commerce and accounting integration can be a major headache. Pakk solves that problem.
As we’ve talked about in other articles - the integration of e-commerce and accounting is a real headache, especially for higher-volume merchants. Traditionally, there have been numerous approaches to the problem:
Create sales reports from your e-commerce software, give them to your accountant, they manually enter summary figures into their accounting software.
Export all transaction data from your e-commerce software, give the spreadsheet to your accountant, they import into their accounting software.
You maintain your own, separate, accounting software and either export summary or transaction level data from your e-commerce software and import to the accounting package.
You run a one-way or bidirectional sync between your e-commerce platform and your accounting software and attempt to correctly duplicate the data from your e-commerce platform in your accounting package.
None of these approaches are satisfactory. They stem from the fact that most e-commerce platforms only track a small portion of value movements in your business. Other movements of value - like inventory purchases, expenses, inventory returns, customer credits, customer payments and sundry expenses are all spread across other systems, if tracked at all.
Pakk tracks all value movements in your business - you don’t need any other software or complex integrations, and everything is always “in sync”.
In this article, we’ll briefly outline how accounting works in Pakk. If you’re unfamiliar with accounting concepts, you might want to pass this on to your accountant to read over and evaluate. From now on, I’ll assume some basic familiarity with concepts like these:
Double-entry bookkeeping
Journals, and journal entries
Currencies and exchange rates
Accounts, from an internal, accounting perspective
Account reports, like “Profit and Loss”, and “Balance Sheet”
Accounting is Optional
You don’t have to use the built-in accounting. If you’d rather use your own accounting software, or your accountant’s software, you can use CSV export and summary reports to get data out of your Pakk account and then either manually type it into the other software or try to import it. We don’t recommend this, of course, because you’d be missing out on one of the huge advantages of Pakk - but it is, of course, a possibility.
To use accounting, check the ‘Enable Accounting’ box in Account Setup > Accounting. This will enable the “Accounting” section in the main menu as well as turn on automatic “system journalling” (more on that below).
Accounts
“Accounts” are an accounting concept - sometimes mapping directly to real accounts like your bank account or credit card account, but often not. Think of them as a place where accounting value is tracked.
Accounts can be created, edited and managed in Pakk. Your list of available accounts is often called “Chart of Accounts” in formal accounting jargon.
Default Accounts
By default, Pakk comes with a small set of predefined accounts. You can use them as-is or edit them or create completely new accounts and deactivate the default ones.
When you turn accounting on, you need to define default accounts for things like:
Sales income
VAT liability
Discounts
Journal Entries
Journal Entries are the foundation of accounting in Pakk. Value movement is tracked exclusively via Journal Entries. This makes things easy to reason about: only Journal Entries impact accounts.
Journal entries are a fundamental of transactional accounting. They consist of lines of “debits” and “credits” that precisely represent the movement of value in your business and leave no room for approximation. In double-entry bookkeeping, journal entries must always balance - this means all movements of value are always captured.
For the record, we don’t use “credits” and “debits” in Pakk - we use positive and negative values.
Examples of movements of value
invoicing a customer for an amount means they owe you that amount
Receiving a customer payment for an amount means they no longer owe you that amount and your bank balance has gone up
Being invoiced by a supplier for an amount means you owe them that amount
Paying a supplier means you no longer owe them but your bank balance has gone down
Selling some stock means you are liable to send that stock out
Sending some stock out means you are no longer liable to send it but your overall inventory value has reduced
Writing-off some expired products reduces your overall inventory value
Paying off a credit card bill means your bank balance reduces but your liability to the credit card company reduces as well
Paying an expense increases your credit card debt
Value, in accounting, is a bit like energy, it can’t be created or destroyed - just moved.
System Journal Entries
Every transaction in Pakk - sales orders, purchase orders, credits, inventory adjustments etc. - will create a parallel journal entry. These journal entries are created and maintained behind the scenes and there’s nothing you need to do explicitly.
These means all movements of value - relating to sales, stock, payments, expenses etc - are accurately captured in a single, double-entry bookkeeping system.
It’s key to understand the importance of having an integrated accounting system when we dive further into what is known as “Cost of Goods Sold” accounting. Because Pakk has a 360 degree view of your business, including purchases and stock levels - “proper” accounting can be done for purchases and sales. This means knowing how much stock you have and crucially, what it is worth, so that when sales are made, the fundamental “Cost of Goods Sold” account (COGS) can be adjusted in tandem with your Sales Income account and Inventory Value account. Pakk even takes into account value differences across batches of inventory (if you want it to). This type of accounting integration is what really marks out having a fulling integrated accounting/e-commerce system from a hobbled-together patchwork of solutions.
Manual Journal Entries
Sometimes manual adjustments need to me made - like stock or debt writeoffs. These can be done by manually entering a Journal Entry at any time.
Expenses
Just as in any accounting system, expenses can be entered and assigned to any of your expense accounts in order to keep track of outgoings. Simple - but again, its all in one place, which just makes everything more streamlined.
Foreign Currencies and Exchange Rates
Pakk allows transacting in any currency and transactions and their corresponding Journal Entries are always recorded in the original currency. This diverges from some other systems that record accounting/journal data only in the systems “base” or “home” currency.
In Pakk, you record your transactional data in the original currency. So if you make some sales in Euros and some sales in Pounds Sterling, your Sales Income account would accrue balances in both currencies. So account balances are always displayed in all currencies in which transactions have occurred.
Sometimes of course, particularly for formal accounting reporting purposes, you need to report figures consolidated into your companies “home” currency. This is easily achieved in Pakk via Exchange Rates. Exchange Rates can be entered into the system at any date and for any currency (rates are entered against the account’s base currency). It’s up to you how granular your exchange rate data is - you can update rates monthly, yearly or daily depending on your preferences and/or tax authorities requirements.
Of course you can download rates from online sources and quickly upload a year’s worth of exchange rate data in minutes!
Once you have exchange rate data in place, all reports can be output either with original currencies or with all currency amounts converted to the your base currency. When converting amounts, Pakk intelligently picks the best (closest) exchange rate from the ones available.
Accounting Data and Reporting
There are three principal ways to view and/or get data out of the system:
Account balances: if you just need to quickly view the current balance of any internal account, these are maintained and available right from the ‘Accounts List’.
Export Journal Entries: for advanced analysis and/or reporting, you or your accountant might want to export your Journal Entries. Journal export is a little different from export of other entities in Pakk in that we export the lines, (i.e. one line per account impacted), so you can then build really detailed spreadsheets over your granular accounting data.
Reporting: Pakk provides a variety of reports, including standard accounting reports like “Profit and Loss Statement”, “Balance Sheet” and “VAT”. Again, all these reports can be output with original currencies or converted currencies.
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