Amazon Seller Accounting and Bookkeeping Guide

Bookkeeping is essential for Amazon sellers because it helps organize your small business's financial transactions and keep them that way. There are several benefits to bookkeeping that can save your business money and time, including: Whether you're experienced on the platform or have just launched your business, use this guide to Amazon accounting and bookkeeping. 

• Avoid tax audits and potential fines and fees.

• Keep your documents and your records organized. 

• Separate your business finances and personal finances.

• Prevent mistakes from occurring before reconciliation.

Pick the Accounting Method That Works for Your Amazon Selling Business

You'll have to select an e-commerce accounting method for your Amazon business: accrual or cash basis accounting.

Accrual accounting uses the actual act of exchanging a product or a service to determine when a transaction is recorded:

• Revenue transactions are recorded on the date that a customer becomes legally obligated to pay you for providing a product or a service. This may or may not be the same time when cash changes hands.

• Expense transactions are recorded on the date that you become legally obligated to pay for a product or service you receive. Just like with revenue transactions, this may or may not be the same time when cash changes hands.

Accrual Basis Accounting Example #1: A customer buys something from you for $500 on November 15th. On the date of the sale, you give the customer an invoice for $500 but don’t get paid until December 15th. You’ll record the $500 of revenue on November 15th, the date of the sale.

Accrual Basis Accounting Example #2: You hire a technician for $750 to repair several of your business’s computers. The technician makes the repairs on December 20th and gives you an invoice. You pay the $750 invoice on January 20th. You’ll record the expense of $750 when the technician performs the repairs on December 20th.

Cash basis accounting uses the cash itself to determine when a transaction is recorded:

• Revenue transactions are recorded on the date you receive cash from a customer as payment for a product or service.

• Expense transactions are recorded on the date you spend the cash when making a purchase.

Cash Basis Accounting Example #1: A customer buys something from you for $500 on November 15th. On the date of the sale, you give the customer an invoice for $500 but don’t get paid until December 15th. You’ll record revenue when you receive the $500 in cash on December 15th.

Cash Basis Accounting Example #2: You hire a technician for $750 to repair several of your business’s computers. The technician makes the repairs on December 20th and gives you an invoice. You pay the $750 invoice on January 20th. You’ll record the expense when you pay the $750 on January 15th.

There are pros and cons to using each method. Smaller businesses typically use cash basis accounting because it’s simple and cheaper. Larger companies use accrual basis accounting because it provides a more accurate financial picture for lenders and investors about the company’s health.

10 Vital Things in Amazon Seller Accounting

Consider these ten vital topics when setting up your accounting and bookkeeping for your Amazon seller business.

Use the Right Accounting Support

One of your top considerations should be accounting support as you develop your Amazon business. Many beginner Amazon sellers use do-it-yourself accounting software to track their business transactions, an indicator of the business’s financial health. However, as your business grows, taxes may become more complicated than your software can handle.

This is where having a professional accountant on your team will be useful. An accountant will ensure you comply with state and federal tax regulations and help you save money by maximizing tax deductions and credits that apply to your business.

Create a Chart of Accounts

By creating a chart of accounts for your Amazon seller business, you can categorize different financial transactions. You can also provide a name, a brief description, and an identification code for your Amazon chart of accounts.

A chart of accounts for your Amazon business contains five accounts, which are:

• Assets 

• Liabilities 

• Shareholder’s equity

• Revenue

• Expenses 

To create your chart of accounts, you’ll start with your asset accounts. There are additional sub-accounts you can list for assets, including: 

• Cash 

• Savings account

• Accounts receivable

You can also add sub-accounts to liabilities, such as:

• Accrued liabilities 

• Accounts payable

• Payroll liabilities 

List your shareholders’ equity account into sub-accounts:

• Common stock

• Preferred stock

• Retained earnings

You’ll list revenue and expenses after your assets, liabilities, and shareholder equity. Your revenue and expenses accounts follow what’s on the income statement for your Amazon seller business.

Track the Cost of Goods Sold

You should track your costs of goods (COGS). COGS will help you determine the gross profit of your Amazon seller business.

You can track the cost of goods sold in one of three ways:

• Average Cost method. The average cost method tracks your average product cost over time. This option is useful because you can track costs regardless of the purchase date. 

• FIFO. FIFO is an acronym for First In, First Out. You can use this inventory method to track the earliest arriving products you plan to sell first and at the lowest price.

• LIFO. LIFO is an acronym for Last In, First Out. You can use this inventory method to track the latest arriving products you plan to sell first and at the highest price.

Amazon sellers have the option to use the Fulfillment by Amazon (FBA) method. According to Amazon, using the Amazon FBA program allows you to outsource your fulfillment duties directly to Amazon and offer free, two-day shipping to your customers. 

Figure Out Storage Needs

Amazon offers inventory management based on how long you plan to store your product, arranged on a first-in, first-out basis.

Your monthly storage fees will vary according to the product you sell and other factors, including:

• Average daily units stored at FBA per month. 

• The current month you’re selling your product.

• Your product’s dimensions and volume.

• Your product’s size tier.

• Whether your Amazon product has a dangerous goods classification.

If you plan on storing your products longer, there are additional fees. Amazon charges long-term storage fees for products in their fulfillment center for over a year.

Long-term storage fees occur monthly, and you’ll pay a rate based on the unit amount or unit volume. You’ll pay the larger amount out of $6.90 per cubic foot or $0.15 per unit.

Maintain a Record-keeping System

Having a recordkeeping system and streamlining it over time will serve as another way to track your transactions more efficiently. You’ll want to maintain your recordkeeping in the following ways:

• Track your expenses and revenue. 

• Keep your business expenses separate from your personal expenses.

• Review your records often, ideally bi-monthly or monthly.

• Record your financial transactions.

• Print your financial transactions as different reports: a balance sheet, an income statement, an accounts payable report, and an accounts receivable aging report.

Account for Amazon Fees and Transaction Types

You'll have to account for the various fees and transaction types from Amazon and reconcile them correctly. Account reconciliation ensures your general ledger and other records match and are complete.

Amazon Fees include: 

• Commissions

• Delivery

• Fulfillment

• Gift Wrap

• Selling

• Shipping

• Storage

• Subscription

• Transport

Amazon Transactions include: 

• Adjustments

• Payable to Amazon

• Promotions

• Refunds

• Reimbursements

• Reserve Balances

• Sales

Account for Amazon’s marketplace facilitator tax and VAT

The marketplace facilitator tax shifts the responsibility of collecting sales tax from your business to Amazon. They're now responsible for collecting and remitting sales tax to your state, which may lead to issues if there are inconsistencies between your materials and Amazon's.

If you sell to customers in the European Union or other countries that embrace the Value-Added Tax (VAT) system, you will be responsible for tax calculations and submissions to appropriate governmental bodies.  

Reconciling ‘Payable to Amazon/Successful Charge’ transactions

You must also reconcile Payable to Amazon and Successful Charge transactions.

The Payable to Amazon transaction represents the full amount you owe to the platform. If Amazon feels it is owed a large amount, it will charge your credit card and label it as a Successful Charge transaction. 

Consider Multi-Currency Transactions

You will not be subject to multi-currency transactions if you sell exclusively in the United States.

As the name implies, multi-currency transactions involve processing payments in different currencies. Your customer pays for an item in their currency while you receive the fund in your own currency.

Shifting foreign exchange rates can yield discrepancies and complicate the recording of multi-currency transactions, adding to the complexity of international selling in your Amazon store. 

Amazon’s Payment Settlement System

Amazon's Payment Settlement System generates financial reports that provide a detailed breakdown of your account activity for a designated period. Settlement reports are generated regularly and provide insight into the deposits your business may have been paid in, helping to ensure accurate records.

View your settlement report in a text editor or common spreadsheet software (Microsoft Excel, Google Sheets, etc.) to manage your information.

Expert Help with Your Amazon Bookkeeping and Accounting Needs

As your Amazon seller business grows, so too will your responsibilities. Correctly managing your accounting and bookkeeping tasks is imperative, but the detailed, time-consuming nature can be challenging.  That's why so many entrepreneurs, small business owners, and Amazon e-commerce sellers trust the tax professionals at 1-800Accountant, America's leading virtual accounting firm, for their needs.

Whether it's bookkeeping and accounting for e-commerce businesses, tax preparation, or any of our professional accounting services, we have the solution you need at a price that fits your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help your Amazon business.