If you are one of the thousands of Amazon sellers who have made it big selling on the platform, you're probably wondering how to keep track of your finances. Amazon doesn't require a specific accounting process on its own, but operating on Amazon comes with unique challenges that you may not be aware of. Let's look at how accounting and bookkeeping services vary for Amazon sellers.
What is Amazon Accounting?
Amazon sellers need to take several different transactions into account, along with their standard sales and expenses. Because running an Amazon seller account is so complex, most companies struggle to record their numbers correctly. The complexity can make it much harder to compile reports, gain insight into business transactions and even file tax returns.
E-Commerce accounting involves tracking:
- Sales
- FBA Business Fees
- Amazon selling fees and other fees
- Reimbursements for returns
- Settlements or disbursements
- VAT, GST, sales tax and other taxes
Failing to keep an accurate record of your sales activity and relevant fees could easily lead to cash flow problems, impede your ability to borrow money, and, at worst, you could end up with a much bigger tax bill than anticipated. As an online retailer, you have to remain in control of your books - or else.
The Challenges with Managing Amazon Business Accounts
E-commerce businesses follow slightly different processes from the norm and face unique challenges, especially if you are selling on multiple channels.
Volume of Data
Amazon accounting is very different to traditional point of sales systems that a brick-and-mortar company may have. Amazon fees are complicated and varied and require accurate categorisation to track. Many of the essential accounting software solutions small businesses use cannot handle the number of transactions and specificity associated with an ecommerce business running on Amazon.
Returns
eCommerce inventory management is difficult. Amazon returns are divided into different categories (Sellable, Damaged, Customer Damaged, Defective, Carrier Damaged) that need to be accounted for. Not accurately accounting for these returns means that damaged inventory isn't written off, and insurance claims aren't filed. You may even end up purchasing stock that isn't even needed! To save money, you need to get a grip on returns fast.
Tax Liability
Amazon has dozens of fulfilment centres around the globe. Knowing which taxes to pay and file for can be challenging if you operate across the UK and EU (or worldwide). The many tax obligations you need to meet could lead to significant headaches (and bills!) down the line. Some e-commerce sellers make twenty quarterly tax filings or more to stay on the right side of the law. (To get a better idea of just how complicated Amazon bookkeeping and taxes can get, take a look at our Ultimate Guide to UK VAT for Amazon sellers post-Brexit).
Fees
Amazon has several fees that have to be tracked. Fees can vary based on the number of listings you have, the programs you subscribe to, and how long inventory sits in their fulfilment centre. Amazon has four standard fees: sales commission, Amazon FBA sellers' Fees, Storage Fees, and Advertising Costs.
Whatever Amazon accounting method you use has to take the fee structure into account before determining your Gross Profit and Net Profit, along with complex VAT, GST and sales tax and; there is a lot that you have to track and keep up to date. (If your business is based in the US check out these 5 common mistakes US Amazon sellers make on their bookkeeping!)
eCommerce accounting Methods: Manual vs Automated
Most businesses doing their own bookkeeping start using a straightforward accounting system, usually logging all of their transactions and data in an Excel spreadsheet. Excel spreadsheets are helpful but not recommended if you are an Amazon seller.
Most ecommerce businesses move fast, and by the time you've completed your bank reconciliation, things have already changed again. Amazon bookkeeping requires keeping track of numerous transactions, taxes and fees, which makes Excel bookkeeping onerous. If you want to keep track of your business's finances, you may need to devote hours poring over bank statements and inventory apps to find and log the most up-to-date information. Errors can creep in easily when adding data manually.
The manual accounting method works for small businesses with very few sales. If you are a fast-growing e-commerce business selling on multiple platforms to multiple locations, you may need to upgrade to a different system to manage your Amazon accounting.
Automated Amazon seller accounting uses powerful accounting software to complete tasks without human intervention. With automation, the heavy lifting is done by the software itself - from tracking and recording transactions to generating reports and financial statements. You can also use automated accounting software solutions to determine how much VAT, GST or sales tax you need to pay and automatically calculate and file your tax returns too.
This means that you can eliminate many of the repetitive tasks like data entry and checking calculations, effectively becoming your own Amazon accountant.
The Benefits of Automated Amazon Accounting Software
The main difference between manual and automated accounting is that the software can complete virtually all tasks related to bookkeeping and accounting. Instead of hiring a tax accountant or bookkeeper to help you manage these tasks, you can take charge of your own business needs without wasting too much of your valuable time. It may not altogether remove the need for an accountant, but it will minimise the hours you need to pay for.
Here are just a few of the ways automated Amazon Seller accounting software can help you as a business owner:
- Automated accounting solutions save time. Accounting can eat up a lot of your time (especially Amazon FBA accounting), which has a domino effect on the rest of your business. By switching to an automated solution, you can focus on the things that matter the most.
- Automated accounting solutions reduce human error. Manual data entry usually results in mistakes, especially when you are recording a large number of transactions. Accounting software integrates with several data sources to record the information on your books correctly.
- Automated accounting solutions save money. You don't need to spend money hiring a full-time accountant. By streamlining your accounting processes, your accountant will need the bare minimum billable hours to take care of your books.
- Automated accounting solutions stop you overpaying tax. With the right software businesses selling on Amazon can often find themselves reducing their tax liabilities. That’s because automated software solutions can check each and every order and correctly group it for tax purposes ensuring that you pay the correct amount of VAT, GST or sales tax every time.
- Automated accounting solutions provide valuable insights: Amazon's default reports are complex and challenging to understand. The right automated accounting tools can reveal insights into your Amazon business that will help you become more profitable in the long run. Easy-to-read and easily accessible reports make compiling a cash flow forecast a breeze. You can use these insights to gain a valuable competitive advantage over other businesses.
- Automated accounting solutions make it easier to file your taxes: A computerised solution will make filing taxes a breeze. You track and store receipts and cash flow, VAT, GST or sales tax, and maximise your deductions using a single platform.
- Automated accounting solutions are safer: Using cloud-based software is much safer because data is backed up securely and accessible from anywhere in the world.
Best Accounting Tools For Amazon Businesses
Now that you are sold on the idea of using automated accounting software, which solutions or software combinations are best for your Amazon bookkeeping needs?
Many blogs and forums recommend Xero as an Amazon accounting tool because it's affordable, flexible and accessible, even if you are a complete novice when it comes to accounting. Xero comes with many helpful resources to track your books, whether you use cash accounting or accrual accounting, or your own system. As a cloud-based accounting software solution, it comes with all the security and convenience you would expect.
The downside? Xero wasn't purpose-built for ecommerce. You need something that can link your Xero account, bank account and your Amazon seller central account so that you can gain a complete bird's eye view into your Amazon FBA business.
Link My Books was designed to bridge that gap and meet the unique needs of companies in the eCommerce space, including Amazon sellers (and those who sell on several different platforms simultaneously). Link My Books connects your Xero account or Quickbooks account and Amazon account to save valuable time and gain real-time insights into your ecommerce business. You can also connect eBay to Xero or Quickbooks, connect Etsy to Xero or Quickbooks, or connect Shopify to Xero or Quickbooks - so you can keep track of sales information on every platform you use. Selling on Amazon (and everywhere else) is easy and automated.
Plus if you’re an accountant or bookkeeper and are looking for e-commerce bookkeeping that’s accurate and automatic for your clients, look no further than Link My Books.
Amazon accounting doesn't have to be a thorn in your side. With Link My Books, you'll gain access to everything you need to manage your Amazon sales and take control of your books without breaking the bank...or tearing your hair out!
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