Every business owner knows accounting is central to a business, especially in ecommerce. If you're a seller on Amazon, lacking proper accounting can ruin your business. But accounting isn’t easy—there’s so much you need to keep track of. Here’s a rundown of what you need to focus on in Amazon seller accounting to get your finances in order.
Why Is Accounting Important?
Finances are the lifeblood of any business, and if you want to run your business effectively, you'll have to back it up with some good accounting.
Accounting keeps your finances in check by documenting all transactions and making forecasts from them for future use. A proper accounting system is also crucial for tracking sales tax and other essential tax obligations so your business thrives uninterrupted by legal liability.
In the Amazon marketplace, a good accounting system is the key to success. It tracks your business's revenue and checks how many orders you send out, and if you've lost any goods in Amazon FBA, saving you money when it comes time to refund your losses.
Ecommerce accounting is more complicated than you think. If you run an Amazon business, your accounting needs to be tip-top. In addition to various advertising strategies, you also have to deal with taxes and operating expenses—surely, you'll need some help from experts.
Accounting for Amazon FBA Sellers
Tracking your assets is vital to your ecommerce business’s survival. If your business uses Amazon FBA, you’ll need an accounting system that keeps track of your company’s assets and the products shipped to customers, and that’s no easy task. Here are some areas your accounting needs to focus on to keep your Amazon FBA business in good shape.
Amazon FBA takes the responsibility of storing inventory and shipping independently from sellers who take part in the program. To keep up with the massive demand, Amazon uses fulfillment centers to store goods and later ship them to customers.
However, fulfillment centers don’t serve sellers. So as an ecommerce business owner, you’ll have to keep track of inventory on your own.
Make sure your accounting system has inventory management as a feature. So in case you lose a unit or two in the warehouse, you’ll know where to find them. More importantly, you’ll have proof that your losses are Amazon’s fault and not yours (which we’ll get to more later).
Even though Amazon provides warehouses for sellers to store their FBA goods in, shipping them to fulfillment centers is entirely the responsibility of the seller. That’s why, in addition to inventory management, you’ll also need to track inbound shipping—what goes to fulfillment centers and what arrives there, as well as if the inbound shipper damages any of your goods—so you can save money on returns by charging your inbound shipper the cost of what you lost.
Lost or Damaged Items and Returns
It’s very common to lose items in Amazon warehouses. Or worse, get items damaged beyond your supervision. During situations like this, Amazon sellers ask for refunds to compensate them for their losses. However, Amazon doesn’t often budge.
If you want to build a strong case for reimbursement on lost or damaged items, you’ll need the accounting to back it up. A concise accounting of your products in an Amazon warehouse is great evidence that your company is not at fault for mishandling any products and could later get you refunds on the items you lost.
Accounting Tasks for Ecommerce Businesses
Ecommerce accounting can be a daunting task; with operations worldwide, ecommerce businesses have a lot on their plate with regard to accounting, like transactions in different countries, different taxes, and thousands of miles between every payment. If you want an easier time dealing with accounting, here’s a breakdown of certain tasks that are essential to ecommerce accounting.
If you run an ecommerce business, replenishing your stock should be one of your top priorities. That’s why purchasing inventory is an essential accounting task for ecommerce businesses. You can’t just buy inventory, you’ll have to make sure everything is accounted for.
Purchasing inventory properly means buying stock in accordance with your company’s financial goals and ensuring you don’t overspend or buy too much stock, since you’ll have to sell everything to get back its value.
Once you’ve gotten your hands on an inventory ready to sell, it’s time to manage it well enough so that every item in your inventory gets shipped out. Mismanaging your inventory could lead to lost, damaged, or, in some cases, stolen items, which is why you need to reconcile your inventory regularly.
Regular inventory reconciliation will give you an updated view of your stocks and immediately notify you when any of your inventory is missing. Adding this information into your accounting software or system provides your company with more context going forward, since you’ll know how much stock you have ready to sell.
Reconciling your accounts—both accounts payable and receivable—are vital to the integrity of your ecommerce business’s accounting. Reconciling accounts gives you an idea of how much you owe and how much you can expect, which you can use as valuable input into making financial forecasts.
Reconciling accounts also helps you manage your cash flow, since you’ll be including “earned” income and “owed” expenses, whether paid or not, in your balance sheet.
Sales Tax Calculation
Since ecommerce businesses usually sell internationally, expect to run your sales taxes through more than a single tax policy. Sales tax rates are different in every country, so each sale across the border must be accounted for separately in tax returns.
You’ll also have to check with the country you have sold products in regarding your company’s tax obligations regarding the sale. This is different from regular businesses, where their accounting departments are different per country.
Financial forecasting is a company’s foresight into their financial future. To get an accurate forecast, you need accurate accounting. Once all the data to make a forecast has been gathered and analyzed, you can use the forecast to make decisions for your company to help it grow.
A great example is using a forecast to deal with product seasonality. If your product’s peak season is coming up, you’ll have to refer to the forecast to check whether you can double-up on purchasing inventory ahead of the season, and whether or not your business can afford to buy it.
Do Amazon Sellers Need an Accountant?
Every business needs a way of recording transactions for the company. And while it's possible to do your own bookkeeping and accounting, growing your business is easier with professionals handling your finances.
You'll have to hire an accountant if you want to ensure your company's finances remain in good health. Accountants are experts in finance and tax obligations. Hiring an accountant will expand your company's financial freedom and keep track of assets or liabilities that you might miss out on.
Getting the help of an accountant is also ideal for ecommerce businesses since online transactions can get complicated, in addition to managing inventory and shipping costs.
Unloop's Accounting for Amazon Sellers
If you have an Amazon Seller Central account, then you're probably aware of Amazon's default reports, which you know aren't enough for a full view of your company's finances. So instead of doing your own bookkeeping, save yourself the trouble and let Unloop handle your Amazon accounting.
Our team of accountants are experts in accounting for ecommerce businesses, so book a call with us and see how we can help you!