Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
As an Amazon seller, you must accomplish many steps to ensure your business will grow and prosper. Some of the tasks that will be on your plate are product brainstorming, target audience research, competitor analysis, search engine optimization, fulfillment method, and data analysis.
While all these are in play, you might overlook another duty that is essential if you want to succeed—accounting.
Many businesses only do their accounting before tax season for the sake of tax law compliance. What sellers like you must understand is that there is more to accounting than paying taxes.
Let’s talk about the many reasons why accounting is a must for your business and everything else you need to know about Amazon accounting.
Check out this content summary.
- Common Misconceptions About Accounting on Amazon
- The Benefits of Accounting for Your Business
- Accounting Best Practices
- Reliable Accounting Tools
- The Amazon Accounting Reports You Should Be Getting
- Integrating Your Amazon Account to Your Accounting Software
- Partnering with an Accounting Agency
Common Misconceptions About Accounting on Amazon
The first step for you to reap the benefits of accounting services for Amazon sellers is to eliminate misleading accounting beliefs. They are the reasons why you might still be discouraged or swayed not to begin accounting early. Check these out, and remember them: these myths should be busted right away.
You can do bookkeeping and accounting on your own.
You need to do a lot of work to manage your Amazon business. Even if you are a certified public accountant, it is still better to delegate all of your bookkeeping and accounting needs to an Amazon FBA CPA. Professionals handling your business’s finances will ensure the accuracy of data and reports. You, on the other hand, can focus on the other areas of business operations.
You can cram accounting before tax season.
“Procrastination is evil.” You may have heard this quote, especially back when you still went to school. It still applies in preparing Amazon financial statements and paying taxes.
Every year, your country's tax department sets a payment deadline, and it is a mistake to cram bookkeeping and accounting mere weeks or days before this deadline. You may prepare the wrong income statement, pay the wrong taxes, or file late, which can get you penalized or fined.
Startups can forget about accounting and bookkeeping.
Working as a one-person team or having only a few members in your team is common among newly launched Amazon stores. With all the tasks you need to accomplish, you may abandon bookkeeping and accounting tasks.
Sellers like you should prioritize accounting, as it will give you an insight into whether your game plan and business decisions are working or not.
It’s okay for startups not to pay taxes.
Startups and small entrepreneurs think they do not need to pay taxes, which is another myth. Some sellers are surprised when they get a notice from the tax department about their taxes, penalties, and fines.
You can skip all these hassles by familiarizing yourself with your local tax laws and always complying. The general rule is that you need to file both personal and corporate taxes.
Excel is enough; automation is overrated.
Excel is free—that is its only advantage over automated accounting software.
Automated accounting software ensures data accuracy, automatic categorization of all transactions, integration to other applications, instant reports, and data safety. The investment you will allot for data automation is worth all the benefits you will get. In contrast, mistakes are common in Excel files, and they can easily be corrupted and compromised.
You don’t need to hire professional accountants and bookkeepers.
The final myth you should bust is that you have no need for Amazon accountants or a CPA for Amazon sellers. Many sellers either rely on their skills or hire seasonal, project-based virtual assistants (VAs).
While VAs have the skills, the challenge comes in giving them a bulk of transactions and data to categorize in a short period. Having a partner or in-house accountant who monitors your books and creates reports in real time is always much better.
The Benefits of Accounting for Your Business
Now that you’re rid of these misconceptions and myths, here is the correct information about the benefits of Amazon accounting.
You invest both money and energy in developing a brand and product that will sell on Amazon. You ensure your listings and campaigns are optimized to reach your target audience, and your competitors’ game plans are always on your radar.
Make your effort pay off by ensuring your finances are always in check. Through accounting, you will not only have the greatest chances of a healthy cash flow and a thriving business, but you can also reap the benefits discussed below.
An efficient way to track your numbers
Imagine a business where you sell your products, replenish your stock, and sell again without knowing if you are making a profit, breaking even, or about to go bankrupt.
Do not run your business blindly, and start accounting the moment you launch it. That way, you’ll have all the data about the inflow and outflow of your money, and you can record all transactions from suppliers and customers.
A secure place for your business data
If you use reliable cloud-based accounting software, you can be sure that important business data is secured and protected. You can lower the risk of hacking or accidentally deleting data. Through cloud-based accounting, you can also limit who can access business intelligence, minimizing fraud and stolen private information.
Gives you a solid basis for decision-making
When you do Amazon seller accounting, you’ll have visibility on production costs, sales, customer data, and supplier information.
For instance, if you see that your production costs are higher than your sales, you can decide to do the following to lower your production costs:
- Ramp up your Amazon ad campaigns
- Target individuals who, according to customer data, have a higher chance of buying
- Look at supplier charges
Pay your suppliers and get paid on time.
Some of the data monitored in accounting are the following:
- Accounts payable or the money you owe your suppliers
- Accounts receivable or the money your clients owe you
You’ll have visibility in all these and more. When you use accounting software, invoices and payments are all automated. You can pay and get paid automatically and on time.
Inventory management at its finest
Integrate your Amazon seller account to the accounting software you are using so that you can manage your inventory easily. Check your stock, make orders to replenish your supply, create invoices, and pay using one software only. All the transactions you make will be tracked and categorized in your books accordingly.
Avoid penalties and fines for not paying tax on time.
When you start selling on Amazon, tax-paying will be like celebrating your birthday; it is the one day in the year you will never forget. If you do forget and fail to pay taxes, you will be reminded, eventually, in the form of fines and penalties.
Through proper accounting, you’ll minimize late and inaccurate tax payments because you will have tracked your income all year.
Accounting Best Practices
Now that you’ve seen both the benefits of and the misconceptions about accounting for your Amazon business, you can confidently decide to start tracking all finances from now on.
If you have chosen accounting software and an Amazon FBA tax accountant to handle it, here are the best practices you, your accountant, and your bookkeeper should know and apply.
Using Amazon FBA Accounting
On Seller Central, Amazon provides many tools to check data about your store’s SEO and ad performance. Aside from these, you can acquire accounting for sales through Amazon. Amazon web services’ financial statements include FBA business reports where you’ll get essential information about sales, payments, inventory, product removals, and fulfillment.
If you are still learning the ropes on data tracking and analytics, this can be a great start to monitor how your business is faring financially. It will also be best to integrate these data and reports into your cloud-based accounting tool so that you’ll only have to look at a single software to check your business finances.
Integrating Amazon accounting services to cloud-based software
Aside from having a single software to look at for your business finances, there are more benefits to integrating the accounting services you get from Amazon into your cloud-based software.
- Automatic categorization of Amazon transactions into income and expenses
- Easy computation of personal and corporate taxable income and payment of taxes
- Customization of reports by acquiring raw data from Amazon
- Protection and security of data when saved in the cloud
Running regular and frequent reports
After pinpointing all the income and expenses, you need to track and configure their categories in the software you use. Make sure that you also make sense of all data by running regular reports.
If your business is still new, the more frequent the report, the better. This way, you can immediately adjust your game plan if you are experiencing slow sales and not hitting your profit goals. You should also generate weekly, monthly, quarterly, and annual reports to see if your plans are working, duplicate success, or adjust plans for any financial bumps.
Going for accrual accounting
There are two types of accounting: cash-based accounting and accrual accounting. Cash-based accounting is when you record transactions when payment occurs. On the other hand, accrual accounting records transactions when they happen, even though payments aren’t made yet.
The first accounting type works if you only get into a few transactions. However, if you are selling on Amazon, accrual accounting is better, especially as your business scales and more sales come in.
Managing inventory using your cloud-based accounting tool
When your in-demand product is about to go out of stock, you need to make an order with your supplier. Make the process easier by integrating your Amazon inventory into your cloud-based accounting tool.
After seeing the products that need replenishment, you can make an invoice, send it to your client, and process the payment in your bank account with just a few clicks. The accounting tool you are using will automatically record and categorize all these transactions.
Paying correct taxes on time
Last but not least among the best practices on Amazon accounting is paying your taxes and paying them on time. April 15 is the date to remember as it is the deadline for personal and corporate income tax returns in the United States.
If your accounting and bookkeeping are in place the whole year, you will not have a problem backtracking all transactions to determine your income. With an accounting tool, you can do the calculation in a few clicks!
Reliable Accounting Tools
Switching from Excel and traditional manual accounting to cloud-based accounting indeed plays a huge role in keeping track of your business finances conveniently. However, the benefits of accounting software come at a price as you need to invest and sign up to enjoy its services. Nonetheless, your money will be worth it with all the features you can enjoy.
QuickBooks is one of the most trusted accounting software you can use. This software was launched in 1998 and was developed from the feedback of professional accountants in those days. QuickBooks is now secured and has a reliable data tracking system that you can readily audit.
Some of the features you can enjoy with QuickBooks are the following:
- Live bookkeeping
- Sorting and monitoring of income and expenses
- Receipt storage
- Creation and sending of invoices
- Accepting payment through invoices
- Time tracking and project management
- Inventory management
- Bank, credit card, and other payment option integration
You can enjoy these features depending on the plan you choose: Simple Start, Essentials, and Plus. You can also try it for free. The best part about QuickBooks is that every plan has additional offers that will be of great use to your growing business.
Technology is amazing, and Hubdoc is proof. This tool cuts down the time you work on data entry.
Before, a bookkeeper had to input tons of papers and receipts into Excel one by one. Now, Hubdoc cuts this work out. Just take a picture of your receipt, and the tool will turn the details into readable text ready to be categorized by your accounting software.
You can also link Hubdoc to other files and data storage you have, particularly your chosen accounting tool. As a result, you have a single tool that can store your documents.
The best part is that all this information, especially sensitive and confidential ones, will be stored in the cloud. As the head of the company, you will have control over who can access the information. With that, you will be sure that your financial details are protected.
This accounting tool is specifically designed to assist your data storage and tracking needs as an e-commerce seller. Whether you sell on Amazon, Etsy, eBay, Shopify, or Walmart, you can enjoy the offers of this tool.
Here are some of the advantages of using A2X.
- No need for manual data entry; everything is automated.
- Accurate data is ensured as the AI tool runs everything.
- Categorizes all the transactions you make in your e-commerce store before they get sent to your accounting software
- The different features of each plan match your needs as you grow your business.
After acquiring all the data from your store, A2X will categorize and send them to your chosen accounting software—QuickBooks, for instance. Then, you can begin monitoring your finances and generating reports from the raw data you get from A2X. This tool is especially helpful if you are selling on different e-commerce platforms, which most sellers do.
The Amazon Accounting Reports You Should Be Getting
You now have an idea of the different tools you can use to track income, expenses, and all other transactions occurring in your business. Now, it is time to make sense of all the numbers and establish an Amazon financial report flow and system.
Sit down with your bookkeeper and accountant, and take a look at the following reports to get a view of your business's financial health.
Begin by knowing the following details about your inventory:
- Top-selling Amazon products
- Slow-moving stock
- The stock you have left
- The products needing replenishment
- A general view of your sales
- Sales per product
- Demographics of the customers
- Fulfillment costs
By knowing these details, you’ll know which products to get suppliers to produce more. You’ll also understand why some products are slow-moving and come up with solutions. Using Amazon FBA, you can pull out slow-moving stock and invest more in best sellers.
Sales are simply the products you have sold, but you need to subtract different production costs to know how much you earned from a sale. As the Profit First framework goes: SALES − EXPENSES = PROFIT.
Through the sales report, you can pinpoint the best sellers and gain more profit. You can also create a game plan on how you can decrease production costs while maintaining high sales.
You should have visibility in both your payment to suppliers and your clients’ payments to you. Some of the details you need to see in the report are the following:
- People who owe you payment
- Payment status
- Payment type (receivables, payables)
- Payment due date
- Date paid
- The project the income is from
- Payment method
You can add more details depending on what your company deems important. You can also configure your accounting tool to sort data according to a particular payment detail to get the data faster.
Returns and refunds
Amazon acknowledges a wide variety of valid reasons for customer returns and refunds, so don’t be surprised if you get returns often. However, keep in mind that returns entail cost as if you are using FBA because Amazon charges for returns processing and repackaging on top of the sale you already lost.
Keep track of the return reasons, sellable items, broken items, and charges for returns processing to know the exact costs. With number visibility, you can decide how to address the problem.
Income/profit and loss statement
Check your company’s revenue, expenses, and costs through a profit and loss report. In this report, you will see a summary of all revenue streams, gross profit, fees, earnings before interest and taxes, and your net earnings month on month.
You can interpret the data to check whether your company is profitable or not. Whatever the result will be, you can use the data for planning and decision-making to make your Amazon business a profitable venture.
The three important details you will see in a balance sheet report are assets, liabilities, and equity.
- Assets: These are the cash, equipment, investments, inventory, and accounts receivable of your company.
- Liabilities: These are the expenses your business needs to pay for, like loans, credits, taxes, and accounts payable.
- Equity: The company’s equity is the difference between the assets and the liabilities.
Through this report, you will know what your company owns and owes. Seeing these details can give you an idea of your net worth.
Cash flow forecast
Let’s say you have collected data for the whole year. Surely, you will notice monthly and quarterly trends. Through this data, you can foresee how another year will go, and you can enact specific plans to better your performance.
It is also the report you want to get if you plan to launch new projects or products or expand your Amazon business. Take a look at your historical data first, simulate different scenarios, and choose the most profitable game plan.
Integrating Your Amazon Account to Your Accounting Software
Ready to integrate helpful accounting tools into your Amazon store? Here are step-by-step guides on how to do it!
- Sign in to your QuickBooks account.
- Select Amazon in the list of applications to connect to.
- Install Amazon, and you will be prompted to complete a form.
- Take note of your Amazon stock locations and Primary Marketplace ID.
- You can import products and prices from Amazon to QuickBooks.
- Press Continue.
- Start managing your Amazon inventory and sales using QuickBooks.
- Sign in to your A2X account.
- Check “Continue with Amazon.”
- Confirm that you are the account owner.
- Choose a region.
- Choose a marketplace (Amazon and other e-commerce markets).
- Log in to your Seller Central account and authorize A2X.
- Seller Central and A2X are now connected!
- Connect A2X to your accounting system.
Hubdoc is a tool you can integrate into your Amazon store to organize all the data and transactions you have. Then, you can integrate Hubdoc into an Amazon accounting tool like QuickBooks.
Partnering with an Accounting Agency
You can do the integrations yourself or delegate the task to your accountant. Another option is to get into a partnership with an Amazon accounting agency. Doing this will allow you to enjoy all these benefits.
Work with CPAs and trained bookkeepers.
An agency has several bookkeepers, and a team that does accounting for Amazon sellers will manage your account. You can skip the hassle of screening and hiring professionals on your own by working with an agency.
The CPAs and trained bookkeepers will ensure that your books are always up-to-date and that all transactions are neatly categorized. When you run reports, you’ll be sure that the data you get is recent and up-to-date.
Get regular reports and consultations.
If you are too busy managing your Amazon business, you can delegate the task of report generation to the accounting agency. You can set up regular meetings and consult their in-house experts on any of your business decisions.
Work with Unloop
Now that you have all the right information, Amazon accounting will be easier for your business. Ensure that you have reliable people and tools so that your business finances are tracked, stored, analyzed, and used to assist you in scaling and making your business succeed.
Alternatively, if you think partnering with an agency is the way to go, look no further and work with us! We at Unloop are professional accountants and bookkeepers who have experienced firsthand the struggles of growing a startup Amazon business. We also offer our services remotely!
We’d love to answer any inquiries or further discuss our offers, so do not hesitate to contact us. We’re just a call away at 877-421-7270.