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.
Getting into the Fulfillment by Amazon (FBA) business is easy. You pick the best amazon FBA course for beginners and skim through it. When you're finished, you only have to click a few buttons and type a few words. Afterward, you'll be ready to sell.
The challenging part of FBA is setting up a good accounting system, and it has to be done as early in the business's life as possible. To do that, you need to know the following things.
Amazon Seller Bookkeeping Basics
If you're an absolute beginner or have very little idea about bookkeeping, you must get educated. Invest time in knowing at least the basics of bookkeeping and how it works. Reviewing the basics will benefit you when setting up an accounting system for your FBA business if you have some idea already. Consider the following.
Learn how to do bookkeeping.
To get the gist of bookkeeping and how it works, you must understand the accounting cycle. Bookkeepers follow the steps of the cycle to ensure proper recording and allocating of income and expenses.
Educating yourself with the accounting cycle is fundamental knowledge. From there, skim other bookkeeping principles. For example, the significance of assets, liabilities, and capital, and how these three relate to each other. You'll also learn the double-entry method and do trial balances. You can choose whether to dive deeper into the bookkeeping practice once you fully grasp how the accounting cycle works, so learn that first.
Determine your accounting method.
Once you've learned how the accounting cycle and bookkeeping work, you can choose to practice it yourself or outsource it. Before doing so, you have to decide what accounting method you'll use first. There are two.
Cash accounting
This accounting method records the transaction on a cash-received basis. Meaning the actual money must be in your bank account for it to qualify as an official record.
This method is the most commonly used by microentrepreneurs and other startup enterprises. This is because the cash method is simple, straightforward, and accurate. It works well for simple business transactions.
Accrual accounting
The accrual method has a time element to it. It records transactions based on when the transaction happened, regardless of whether there's money paid or not.
This method is more complex, but it provides more information for those who manage businesses involving complex transactions. Some large-scale businesses have more leeway when it comes to credit, so it's inevitable that a big-ticket item sale may be paid later. It's also possible for you to acquire products and pay for them at a later date, or perhaps pay in advance before the product arrives. Accrual accounting is useful when reflecting these transactions in the books.
Learn how each financial statement works.
Bookkeeping ultimately ends with the generation of financial statements. These documents are the end goal for financial accounting and give you an overview of your business’s health. So it's important to know what the numbers in these statements mean. Here's a brief description of these statements, so you know what to expect.
Income statement
This document reports your business activities in a given period. For example, the usual report is generated annually for tax purposes. To give you a more comprehensive view of your business, we at Unloop, on the other hand, generate these reports monthly.
Balance sheet
The balance sheet lets you see how healthy your business is, financially. This report tells you how much value your assets, liabilities, and capital have. In general, the total assets must equal the total liabilities plus capital.
Cashflow statement
This financial report gives you an overview of the activities where your hard cash is channeled. There are three activities where your cash is channeled: operating, financing, and investing. Knowing where your cash flows outward and inward will give you insights into how much money you need.
Amazon FBA Accounting Tips to Build an Efficient Business
Once you have your bookkeeping knowledge handled, you can start setting up an accounting system for your FBA business. To produce satisfactory results in your accounting system, you must do the following.
Familiarize yourself with accounting software and applications.
Nowadays, bookkeeping and accounting are done digitally. It's true, especially with e-commerce businesses such as Amazon.
To compete well in the digital marketplace, you must have efficient accounting software. But, to get such software working in your business's favor, you have to know how to use them.
Popular accounting software such as Quickbooks is a good example. Quickbooks is used by many businesses, whether brick-and-mortar or online. Learning how it works will already give you a leg up in the game. Try studying how it operates and how you can integrate Quickbooks into your Amazon business.
Be aware of the taxes your business should pay.
Having a business means you're now liable to pay taxes. Therefore, you have to be aware of the amount your business is obligated to pay from its earnings. One important reason is to avoid any penalties, or worse, be deemed a tax evader.
Another good reason for knowing your business's taxes is to learn how to avoid paying them in a legal way. By creating accurate financial reports, know how much tax is being deducted out of your profits. Then, once you've got a good picture, you can consult with an accountant for any tax avoidance advice.
Two taxes prevail in an Amazon business: federal income tax and sales tax. Find out the mechanics of their deduction, what forms should be filed, and when. That way, you can keep up with your accountant in discussing tax avoidance strategies.
Plan and update your book's chart of accounts.
Part of knowing bookkeeping is getting acquainted with the charts of accounts. These are names with different codes that serve as labels for each double-entry transaction.
Accounts such as 'salary expenses' or 'accounts receivable' are common labels you'll use to allocate transaction amounts. But as your business grows, your basic accounts will also grow and will include more names, so it's important to regularly update your account chart. At the very least, on an as-needed basis.
Reconcile books to bank statements.
A big part of the whole accounting process is making sure the amount reflected on your business bank account matches your bottom line in the statements, particularly the balance sheet. That's why you must learn to match your books' total amount with your business bank account.
The importance of software must be brought to light again. Because bank reconciliation can be a pain if done manually. With software that integrates into your bank account and virtual books, you'll save time.
But it doesn't mean that you can only rely on the software doing its work. You'll still need to learn how to reconcile books to bank statements manually. Doing this will help you find out any inconsistencies done by imperfect software.
Amazon FBA Bookkeeping and Accounting is Easy
We know to learn and implementing the tips above sounds overwhelming and time-consuming. That's because it is. But that doesn't mean it should be difficult for you. And it also doesn't mean you have to learn everything before setting up your accounting system. Unloop can do accounting for Amazon sellers. Our team of professionals uses Quickbooks and other e-commerce related applications to record transactions for monthly reporting. In addition, you'll also get sales support from the team to help you manage your numbers and pay taxes accurately. Call us at 877-421-7270 or browse our website for more details.