As an Amazon seller, managing your finances effectively is crucial for the success and growth of your business. This blog post delves into the unique financial and transactional aspects of running an Amazon business, including tracking sales, managing inventory, handling Amazon fees, and dealing with tax obligations.
We'll also distinguish between Amazon accounting and Amazon bookkeeping, and explore the importance of both in maintaining the financial health of your business.
We'll discuss the challenges of managing Amazon business accounts, the benefits of automated Amazon accounting software, and provide a step-by-step guide on how to do Amazon accounting.
Whether you're a seasoned seller or just starting out, this guide will equip you with the knowledge and tools to streamline your Amazon accounting processes and make strategic business decisions based on financial data.
Key Takeaways from this Post
What is Amazon Accounting?
How does Amazon Accounting differ from wider eCommerce Accounting? Amazon accounting is a specialised area of accounting that focuses on the unique financial and transactional aspects of running an Amazon business.
This includes tracking sales, managing inventory, handling Amazon fees, and dealing with tax obligations. It's a crucial part of accounting for Amazon sellers, ensuring that your business remains financially healthy and compliant with tax laws.
Amazon Accounting vs Amazon Bookkeeping
The main difference between Amazon accounting and Amazon bookkeeping is that bookkeeping involves the day-to-day recording of financial transactions, while accounting is a broader term that includes the interpretation, classification, analysis, reporting, and summarization of financial data.
In other words, bookkeeping is the foundation upon which accounting is built.
Bookkeeping for Amazon sellers involves recording every financial transaction, including sales, returns, and fees.
On the other hand, Amazon seller accounting involves analysing this data, making financial forecasts, filing tax returns, and making strategic business decisions based on financial data.
What does Amazon accounting involve?
Sales
Sales tracking is the process of recording and monitoring all the sales transactions that occur in your Amazon business.
This includes tracking each sale, the price at which each item was sold, and the total revenue generated. It's crucial for understanding your business's profitability and for calculating taxes.
FBA Business Fees
Amazon FBA accounting involves tracking the fees associated with Amazon's fulfilment by Amazon (FBA) program.
These fees include storage fees for keeping your products in Amazon's warehouses and fulfilment fees for Amazon's picking, packing, and shipping services. Accurate tracking of these fees is essential for understanding your business's overall expenses and profitability.
Amazon selling fees and other fees
In addition to FBA fees, Amazon charges various seller fees, including referral fees (a percentage of each sale), closing fees, and high-volume listing fees.
Tracking these fees accurately is crucial for understanding your total expenses and for calculating your net profit.
Reimbursements for returns
Amazon provides reimbursements for returned items, and these need to be accurately tracked in your accounting system.
This includes tracking the number of returns, the reasons for the returns, and the total amount reimbursed.
Settlements or disbursements
Amazon pays sellers every two weeks, and these payments, known as settlements or disbursements, need to be accurately recorded in your accounting system.
This covers tracking the total amount received and any fees or charges deducted by Amazon.
VAT, GST, sales tax and other taxes
As an Amazon seller, you're responsible for collecting and remitting various taxes, including Value Added Tax (VAT), Goods and Services Tax (GST), and sales tax. These taxes need to be accurately tracked and reported in your accounting system. You're also at times entitled to an Amazon VAT refund, which can be a nice windfall.
Other aspects of Amazon seller accounting include:
- Inventory costs: for Amazon sellers include the cost of purchasing products, storage fees for keeping your products in Amazon's warehouses, and costs related to shipping and handling.
- Payroll Expenses: Involves tracking all expenses related to employee compensation, including wages, salaries, bonuses, and benefits.
- Owner's Equity: Refers to the owner's investment in the business. It's calculated as the difference between the business's total assets and its total liabilities.
- Other Expenses or Income: Includes any other costs or income related to your business, such as interest expenses, rental income, or gains from the sale of assets.
Why Amazon accounting is vital for sellers
Compliance with Tax Laws
Accurate Amazon seller accounting is crucial for complying with tax laws. By accurately tracking sales, expenses, and taxes, you can ensure that you're paying the correct amount of tax and avoiding penalties for underpayment or late payment.
Understanding Your Business's Financial Health
Amazon accounting provides crucial insights into your business's financial health. By tracking sales, expenses, and profitability, you can make informed decisions about pricing, inventory management, and business growth.
Planning for the Future
With accurate accounting information, you can make strategic decisions about your business's future. This includes planning for growth, identifying areas for cost savings, and making informed decisions about potential investments.
The Challenges with Managing Amazon Business Accounts
Volume of Data
Amazon seller accounting is very different from traditional point of sales systems that a brick-and-mortar company may have. Amazon fees are complicated and varied and require accurate categorization 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
Returns are a common occurrence in the Amazon marketplace. They can significantly impact your bottom line and complicate your accounting process.
You need to track returns accurately to ensure you're accounting for the loss in sales and the potential reimbursement from Amazon.
Tax Liability
As an Amazon seller, you're responsible for collecting and remitting various taxes, including sales tax, VAT, and GST. VAT on Amazon fees can be complex, especially if you're selling in multiple countries or states with different tax rates and rules.
Fees
Amazon charges a variety of fees, including FBA fees, referral fees, and high-volume listing fees. These fees can be complex and varied, making them challenging to track accurately.
Inventory Management
Inventory management is a significant challenge for Amazon sellers. You need to track the cost of goods sold (COGS), manage inventory levels, and account for inventory storage costs.
This requires a robust accounting system that can handle the complexities of ecommerce inventory management.
eCommerce accounting Methods: Manual vs Automated
Manual accounting involves manually entering and tracking financial transactions, while automated accounting uses software to automatically track transactions, calculate totals, and generate reports.
While manual accounting can be more flexible and customizable, it's also more time-consuming, prone to errors, and less scalable than automated accounting.
How to do bookkeeping for Amazon sellers
- Understand Your Business's Financial Needs
- Choose an Accounting Software
- Integrate with an Automation Tool
- Regular Review and Update of Accounts
- Plan for Taxes
- Regular Financial Analysis
Getting started with Amazon FBA accounting might seem overwhelming, especially given the unique challenges and intricacies of the Amazon landscape. However, with the right approach, the process can be manageable and even empowering.
Here is a more detailed step-by-step guide on how to do Amazon accounting:
1. Understand Your Business's Financial Needs
Firstly, take the time to thoroughly understand your business's financial needs. This includes everything from tracking daily sales and expenses, understanding tax obligations, inventory tracking, to strategic financial planning.
This step forms the foundation for your Amazon seller accounting process.
2. Choose an Accounting Software
Amazon businesses deal with high volumes of transactions across multiple platforms, currencies, and payment methods. To efficiently manage this, invest in a robust accounting software solution designed for Amazon.
This software should be able to integrate with your Amazon platform, track all transactions in real-time, manage sales tax across different jurisdictions, and provide insightful financial reports.
3. Integrate with an Automation Tool
Automation is key in Amazon seller accounting. With the high volume of transactions and the need for real-time accuracy, manual data entry isn't a viable option.
Choose an automation tool that can seamlessly link your accounting software with your Amazon platform, streamlining data transfer and minimising the risk of errors.
4. Regular Review and Update of Accounts
Regular review and updating of your accounts is crucial. Stay on top of daily transactions, monitor your cash flow, review your financial reports, and regularly reconcile your accounts.
This ongoing maintenance is essential for accurate financial management and early detection of any issues or discrepancies.
5. Plan for Taxes
Given the complex nature of tax regulations in Amazon, especially for businesses operating across multiple jurisdictions, strategic tax planning is a must.
Understand your tax obligations, ensure accurate and timely tax filings, and look for legal ways to minimise your tax liability.
6. Regular Financial Analysis
Regular financial analysis enables you to understand your business's financial performance and make informed business decisions.
Analyse key financial metrics, compare your performance against industry benchmarks, and use these insights to drive business growth and profitability.
The benefits of automated Amazon accounting software
Automated accounting solutions save time
By automating the process of recording transactions, automated accounting solutions can save you a significant amount of time.
This allows you to focus on other aspects of your business, such as sourcing products and marketing.
Automated accounting solutions reduce human error
Manual accounting can be prone to errors, such as data entry mistakes. Automated accounting solutions reduce the risk of these errors, ensuring your financial records are accurate and reliable.
Automated accounting solutions save money
By saving time and reducing errors, automated accounting solutions can save you money. They can also help you identify cost-saving opportunities by providing detailed financial reports and insights.
Automated accounting solutions stop you overpaying tax
Automated accounting solutions accurately track your income and expenses, ensuring you're not overpaying on your taxes.
They can also help you identify tax deductions that you may not have been aware of.
Automated accounting solutions provide valuable insights
With automated accounting solutions, you can generate detailed financial reports that provide valuable insights into your business's financial health.
This can help you make informed decisions about pricing, inventory management, and business growth.
Automated accounting solutions make it easier to file your taxes
Automated accounting solutions can simplify the process of filing your taxes. They can generate tax reports, help you calculate your tax liability, and ensure you're complying with all relevant tax laws and regulations.
Automated accounting solutions are safer
Automated accounting solutions often include security features that protect your financial data from unauthorised access.
This can give you peace of mind and protect your business from financial fraud.
Summary
- Saves time
- Reduces human error
- Saves money
- Stops you overpaying tax
- Provides valuable insights
- Makes it easier to files taxes
- Makes it safer
Best Accounting Tools For Amazon Businesses
When it comes to managing the finances of an Amazon business, two of the most best Amazon accounting software options are Xero and QuickBooks.
Both of these tools offer a range of features that can help Amazon sellers streamline their accounting processes, manage their finances more effectively, and gain valuable insights into their business performance.
Xero
Xero is a cloud-based accounting software that offers a range of features designed to simplify the accounting process for Amazon sellers. Some of the key benefits of using Xero include:
- Affordability: Xero offers a range of pricing options, starting from $9 per month, making it a cost-effective choice for many businesses.
- Ease of Use: Xero is known for its user-friendly interface and jargon-free platform, making it accessible even for those who are new to accounting.
- Advanced Features: Xero offers a range of advanced features, including sales tracking solutions and CRM software, that go beyond just reporting data.
- Inventory Management: Xero's inventory system is simple and easy to use, making it a great choice for managing your Amazon inventory.
- Integration: Xero can be integrated with a range of other software solutions, including Link My Books, to provide a comprehensive accounting solution for Amazon sellers.
QuickBooks
QuickBooks is another popular choice for Amazon sellers, offering a range of features designed to simplify the accounting process. Some of the key benefits of using QuickBooks include:
- User-Friendliness: QuickBooks is known for its user-friendly interface and fast loading times, making it a great choice for those who are new to accounting.
- Customer Service: QuickBooks offers 24/7 phone support, providing excellent customer service to its users.
- Invoicing and Sales Receipts: QuickBooks offers a comprehensive invoicing and sales receipt system, making it easy to manage your income and expenses.
- Integration: Like Xero, QuickBooks can also be integrated with other software solutions, such as Link My Books, to provide a comprehensive accounting solution for Amazon sellers.
How Link my Books makes FBA accounting simple
Link My Books is a software solution that simplifies fulfilment by Amazon (FBA) accounting by automating many of the tasks associated with bookkeeping and financial management. It offers a range of benefits that make it an ideal choice for Amazon sellers.
Time-Saving
One of the most significant benefits of using Link My Books is the time it saves. The software automates the accounting process, eliminating the need for manual data entry and reducing the time spent on bookkeeping tasks.
This allows business owners to focus on other aspects of their business that require their attention.
Reduces Human Error
Link My Books reduces the likelihood of human error in accounting. Manual data entry often results in mistakes, especially when recording a large number of transactions.
Our software integrates with several data sources to record the information on your books correctly, reducing the risk of errors.
Cost-Effective
Link My Books is a cost-effective solution for Amazon sellers. It eliminates the need to hire a full-time accountant, and by streamlining the accounting process, it reduces the billable hours needed for an accountant to manage your books.
Accurate Tax Calculation
The software ensures that you pay the correct amount of VAT, GST, or sales tax every time. It checks each order and correctly groups it for tax purposes, potentially reducing your tax liabilities.
Valuable Business Insights
Link My Books provides valuable insights into your Amazon business. It generates easy-to-read and easily accessible reports that can help you become more profitable in the long run. These insights can give you a competitive advantage over other businesses.
Simplified Tax Filing
Link My Books makes it easier to file your taxes. It tracks and stores receipts, cash flow, VAT, GST, or sales tax, and maximises your deductions using a single platform, making tax filing a breeze. Link My Books also acts your own Amazon currency converter in real time, keeping things easier to handle.
Enhanced Security
Using cloud-based software like Link My Books is safer because data is backed up securely and accessible from anywhere in the world.
This provides peace of mind and ensures that your financial data is always protected.
Extra tips on how to do Amazon seller accounting
Choose the Right Accounting Method
There are two primary accounting methods - cash and accrual. The cash method involves recording revenue when cash is received and expenses when they are paid.
On the other hand, the accrual method involves recording transactions as they occur, regardless of when the money changes hands.
For Amazon sellers, the accrual method is often more beneficial as it provides a more accurate picture of your financial situation, especially if you plan to sell your business in the future.
Separate Personal and Business Finances
It's crucial to keep your personal and business finances separate. This not only makes your accounting process more straightforward but also helps ensure compliance with regulatory standards. Consider setting up a dedicated business bank account for all your business-related transactions.
Use Accounting Software
There are various accounting software options available that can simplify your accounting process. These tools can automate data organisation and analysis, saving you time and reducing the risk of errors.
Some software, like Link My Books, can even integrate with your Amazon store, ensuring accurate data transmission across all accounts.
Maintain Organised Accounts
Keeping your accounts organised is essential for efficient Amazon seller accounting. Categorise each account with a label and short description to keep track of all transactions, from sales and processing fees to taxes, refunds, and expenses. This will help ensure that no important information slips through the cracks.
Perform Regular Checks
Regularly checking your accounts can help you stay on top of your business's performance and identify any patterns that need attention.
Consider performing weekly checks to manage smaller amounts of data at a time, which can be less overwhelming than waiting until the end of the month.
Set Aside Time
Dedicate specific time for your accounting tasks. Consistent time investment can help you stay on top of your financials and avoid last-minute rushes during tax season.
Ensure Tax Compliance
Ensure you are compliant with all relevant tax laws. This includes collecting sales tax where necessary and understanding your obligations for income tax.
Utilise Free Resources
The internet is full of free resources that can help you improve your Amazon seller accounting skills. Take advantage of these resources to stay competitive and enhance your accounting processes.
By implementing these tips, you can make your Amazon seller accounting process more efficient, saving time and money, and ultimately boosting your business's profitability.
Key financial reports to know
Profit & Loss Statement
This report provides a summary of your revenues, costs, and expenses over a specific period. It's crucial for understanding your business's profitability.
Balance Sheet
The balance sheet provides a snapshot of your business's financial position at a specific point in time, showing your assets, liabilities, and equity.
Cash Flow Statement
This report shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.
Key financial metrics to know
Cost of Goods Sold (COGS)
This is the total cost of all the goods you sold during a specific time period. It's crucial for understanding your business's profitability.
Gross Margin
This is the difference between sales and COGS. It's a key indicator of your business's financial health and profitability.
Inventory Turnover
This metric shows how many times a company has sold and replaced inventory during a given period. A low turnover implies weak sales and excess inventory, while a high ratio implies strong sales.
FAQ
How do I get the data I need from Amazon Seller Central?
You can download various reports from Amazon Seller Central, including transaction details, fulfilment reports, and payment reports. These reports can be accessed from the "Reports" menu in Seller Central.
What accounting system does Amazon use?
Amazon uses SAP as its ERP system for its business processes. However, for Amazon sellers, Amazon doesn't require a specific accounting process. Sellers often use accounting software like QuickBooks or Xero to manage their finances.
Do you need a business account to be an Amazon seller?
No, you don't need to be a registered business to sell on Amazon. Amazon doesn't require you to register your business, but it's possible your local governments want you to register an online business.
However, once you start to make a profit, it's important to report all of your income come tax time.
Make Amazon accounting fast, easy and accurate
Transform your Amazon accounting with Link My Books! Our powerful tool seamlessly syncs your ecommerce sales data with your accounting software.
From tracking your COGS to handling multi-currency transactions and managing sales tax, Link My Books has got you covered.
Let us simplify your ecommerce accounting process so you can dedicate more time to growing your business. Why waste hours managing accounts manually when you can automate it with ease?
Experience the difference today by trying Link My Books! Start your free trial now and witness how our solution revolutionises your Amazon accounting.
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