If you are serious about selling on eBay, a comprehensive, easy to use, system of bookkeeping for an eBay business is essential for three reasons.

1. Without a system of bookkeeping for an eBay business you have no way of gaging your actual progress in building your business. Without such a system you have nothing to show how well, or how poorly, your business is actually doing - whether you are actually making money or losing money.

2. Tax purposes. The IRS requires that you keep records of your business and include any profits or losses in your annual tax return. Additionally, should you ever be audited, without detailed records you could be facing additional taxes that you wouldn’t have to pay had you had a working system of bookkeeping for your eBay business in place.

3. As your business grows, you may someday want to apply for a business loan. Or, you find you need the income generated by your eBay business to qualify for a personal loan. In either case, the financial institution will require detailed paperwork substantiating the income from your eBay business.

Even if you sell only a few items a month on a part-time basis - You still need a good bookkeeping system!

As a rule of thumb, a good system of bookkeeping for an eBay business consists of five general parts:

1. The Record Keeping System - You will need some kind of system in place to keep track of your business financial information. Without a record keeping system in place, there is no possibility of tracking the financial health of your business.

2. The Inventory - An up-to-date listing of inventory list is essential to a bookkeeping system for anyone who sells a physical product. You will need it to determine the value of your unsold inventory at the end of the tax year. It will also allow you to fine-tune your buying habits throughout the year.

3. The Account List - The accounts list will include your eBay income, expenses, assets, and liabilities.

4. The Category List - A category list is actually just an extension of the accounts list. It allows you to break each account down into smaller accounts for better record keeping. Some examples of categories are inventory cost, office supplies, taxable and non-taxable sales, etc.

5. The Automobile Expense Record - This is simply a record of all vehicle, or transportation, expenses related to your eBay business. It should include the date, the vehicle if you use more than one, where you went and for what reason, the beginning and ending mileage, and the total miles driven.

All of the above components of a good bookkeeping system could be created with a notebook and pencil, but an easier, and more convenient, approach is to use one of the many bookkeeping computer programs available such as Quickbooks, Quicken, Microsoft Money, etc.

To give everyone an idea of how everything fits together, here’s how the system that I use personally.

For inventory I use an OpenOffice generated spreadsheet consisting of six columns. The columns are Inventory #, Item Description, Date Purchased, Purchase Price, Date Sold, and Sales Price. The same thing can be done with Microsoft Office, Microsoft Works, or any other spreadsheet program. I use OpenOffice simply because they offer a powerful open source Office Suite free.

For everything else I use Quicken Home And Business, but Quickbooks, Microsoft Money, Peachtree, or most other similar programs could be set up the same way.

Here’s a breakdown of the accounts and categories I use.

Tomorrow, Part 2 will provide suggested Expense Account categories and a recap of bookkeeping for an ebay business.

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