Guide to Bookkeeping for Amazon Sellers

April 8, 2022
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Bookkeeping is one of the most vital duties for Amazon sellers. There are ways you can implement bookkeeping to comply with tax regulations and tax rules. 

Whether you’re a veteran Amazon seller or are new to the eCommerce platform, you’ll want to keep organized and methodical bookkeeping a priority throughout your career as a seller. Here is your guide to bookkeeping for Amazon sellers.

Why Is Bookkeeping Important for Amazon Sellers?

Bookkeeping is important for Amazon sellers because it will help your small business’s financial transactions remain organized. There are several benefits to bookkeeping that can save you and your business money and time: 

  • 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 Business 

When doing bookkeeping as an Amazon seller, you can choose from an accounting method to track your transactions. There are two accounting methods: the accrual and cash accounting methods.

Accrual accounting is the first accounting method. Using the accrual accounting method, you’ll match expenses and revenue with every transaction. 

The accrual accounting method differs from the cash accounting method in two ways. You can use both accounts payable and accounts receivable, and you’ll also list expenses and revenue as they occur. 

This accounting method may help Amazon sellers who want more details about the financial state of their business.

Cash accounting is the second accounting method. For Amazon sellers using the cash method of accounting, there’s a difference in how you’ll add expenses and revenue. You’ll add revenue only when your business receives cash. When you have an expense to pay, you’ll deduct the amount from your expenses.

Although the cash accounting method may be easier to track, you won’t be able to include your accounts payable or accounts receivable. 

5 Things Amazon Sellers Should Keep in Mind for Their Business

There are five things you should know about bookkeeping for your business.

1. Use the Right Accounting Support

One of your top considerations should be accounting support as you develop your Amazon business. Many beginner Amazon sellers opt to use accounting software to track their transactions. However, as your business develops, taxes may become more complicated. This is where having a professional accountant on your team will come in handy. Not only will an accountant ensure you’re in compliance with both state and federal tax regulations, but they’ll also help you save money by maximizing tax deductions and credits that apply to your business. 

2. Create a Chart of Accounts

Next, you can create a chart of accounts for bookkeeping for Amazon. By creating a chart of accounts, you’ll see different categories of financial transactions. You can also provide a name, brief description, and an identification code for your chart of accounts.

A chart of accounts contains five accounts, which are:

  1. Assets 
  2. Liabilities 
  3. Shareholder’s equity
  4. Revenue
  5. 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

On to the liabilities. You can add sub-accounts to liabilities such as: 

  • Accrued liabilities 
  • Accounts payable
  • Payroll liabilities 

Third, you’ll continue with shareholders’ equity. You’ll also list this account into sub-accounts:

  • Common stock
  • Preferred stock
  • Retained earnings

Finally, 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. 

3. Track Cost of Goods Sold

Third, you should track the costs of goods sold, or COGS. COGS will help you determine the gross profit of your business. 

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

  1. Average Cost method
  2. FIFO
  3. LIFO

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 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 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.

4. Figure Out Storage Needs

The fourth thing to keep in mind regarding your Amazon business is your storage needs. Amazon offers inventory 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 Fulfillment by Amazon 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 for a longer duration, there are additional fees. Amazon charges long-term storage fees for products in their fulfillment center for longer than one 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.

5. Maintain a Recordkeeping System

Having a recordkeeping system in place 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.

Bookkeeping for Amazon Sellers

As your eCommerce business grows, so too will your responsibilities. Managing your books correctly is essential but also time-consuming. Consider outsourcing so you can free up time to focus on sourcing inventory, stay on top of Amazon trends, and grow your business. 

At 1-800Accountant, our certified US-based accountants have more than 17 years of experience on average. Partner with a professional bookkeeper who has worked with Amazon sellers and knows the ins and outs of eCommerce taxes. You can rely on 1-800Accountant’s dedicated bookkeepers to categorize transactions and reconcile your accounts — accuracy guaranteed. 

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.