Bookkeeping for Amazon Sellers

Once you’ve found a product, landed on a winning sales strategy, opened an Amazon seller account, and created your listings, you can pretty much let Amazon cover the rest. Their easy-to-use Fulfilment by Amazon (FBA) service means they’ll handle your inventory’s storage, packaging, and shipping.

But while Amazon does most of the work for order fulfillment, you still need to manage operations, and that includes your financials. After all, when you’re disconnected from your finances, you’re less likely to know if your business is healthy and sustainable—and poor cash flow is one of the top reasons small businesses fail.

Fortunately, staying on top of your accounting doesn’t have to be complicated. Like many things in business, it’s only daunting until you learn what you need to do. Here’s why bookkeeping is essential for every Amazon seller.

Why does bookkeeping matter for Amazon sellers?

As a business owner and Amazon seller, you already know how important it is to keep up with the numbers. If you let your inventory get too low or price your products too high, for example, you’re going to miss out on valuable sales.

Bookkeeping is just the best way to keep track of the numbers that matter most for your business’s financial health. How much did you spend on new inventory? How much money did you make from customers? How much money are you paying to Amazon? Bookkeeping can help you get a handle on some of your most important business questions.

Bookkeeping and accounting help you record, organize, and understand what’s going on in your business. While there are many ways to keep track of this information, jotting it down in a spreadsheet doesn’t cut it for long. Instead, you need a uniform method of tracking financial transactions so that you can monitor how your business is doing over time.

There are many reasons you need good bookkeeping, but here are a few:

• You need to know your net profit. You find the net profit by taking your total sales income and subtracting the money you spent to make those sales like shipping, storage, and purchase fees. When your books are up-to-date, you’ll have this number at hand at all times.
• You need it at tax time. You can’t file your taxes without knowing how much you’ve made, how much you’ve spent, and your net profit.
• You can monitor the financial health of your business. How much money have you made this month? How much did you spend last month? How much is shipping costing you? Is your business healthy? Bookkeeping is the best way to know.
• You can find tax deductions. Want to pay less in taxes? Find deductions. Tax deductions are business-related expenses you’ve made over the year that you can subtract from your tax bill. There are many tax deductions specific to ecommerce, but you can’t use them if you don’t organize your expenses.
• You can borrow money. If you want to borrow money, you’ll need to prove you’re a good risk. The financial statements created through bookkeeping can help you show potential investors that their money is in good hands.
• You can avoid expensive mistakes. You’ll never know how much money you’ve lost making accidental mistakes if you never update your books. Updated books can help you keep costly mistakes under control.

Take it from seven-figure Amazon seller, Trevin Peterson, who shared his mistake overpaying $30,000 in taxes because his financials were scattered and bookkeeping incomplete:

If I would have just done it right from the get-go, I would have literally saved tens of thousands of dollars.

Nobody cares more about how much money is going in and out of your business than you—well, you and the IRS. Bookkeeping is a simple way to keep tabs on your money in a way that keeps both parties happy.

Specific considerations for Amazon accounting

Unlike brick-and-mortar stores, ecommerce sales sometimes have more complex implications. Amazon sellers have a few extra considerations when it comes to bookkeeping.

Make sure your accounting method works for your business

Cash basis accounting

Many small business owners use a cash basis accounting system, but this isn’t necessarily a good fit for Amazon FBA sellers. Cash accounting recognizes revenue and expenses only when they change hands—which can be a problem for small businesses that carry inventory.

For Amazon sellers, cash basis accounting can be particularly misleading. Since Amazon pays every two weeks, some months will look hugely profitable, but those profits aren’t always a true reflection of that month’s sales. On the other hand, when you spend a lot of cash in one month to restock your merchandise, that month will look like a disaster.

Perhaps most importantly, if you decide to sell your Amazon business someday, you’ll need to be able to show a complete picture of the business’s financial health. It’s harder to prove your ongoing profitability when you use cash accounting since the monthly numbers can vary so widely.

Accrual basis accounting

Unlike the cash method, accrual accounting records revenue and expenses when they’re earned, not when they’re paid. This offers a more realistic idea of income and expenses over time, leveling out the sometimes unpredictable swings of cash accounting.

Businesses with inventory are almost always required to use accrual accounting (though there are exceptions). If you make a sale at the end of one month but your customer’s payment doesn’t clear until the beginning of the next, accrual accounting will pair those transactions to offer a more accurate and reliable picture of your monthly sales.

Learn more about the differences between cash and accrual accounting.

Be aware of the cost of international sales

Amazon FBA sellers should also be very aware of the implications of international sales, as they may also include additional duties and fees as well as currency exchange rates to consider.

If you have more than one channel through Amazon, you will need to keep track of your accounting across each of your individual business lines. For example, if you’re selling in both the United States and the UK through their respective Amazon sites, you’ll need to track income and expenses for both of those channels separately.

Make sure you comply with sales tax requirements

When you sell in multiple states, you need to account for different sales tax requirements as well. While accounting software can help you keep sales tax up to date in your books, knowing which documents each state will require at tax time is beyond the scope of a spreadsheet. You’ll need to know the basics of sales tax liability in every state where you do business.

You may reside in one state but have sales tax nexus in another, which means you’ll need to register for a sales tax permit in that state and collect sales tax from buyers in that state.

Helpful Resources:

• 6 Challenges of Ecommerce Accounting (& How to Overcome Them)
• What Is Sales Tax? (A Simple Guide)
• What You Need to Know About Taxes as an Amazon Seller

Getting started with bookkeeping for Amazon sellers

If you’re just getting started with bookkeeping for your Amazon business, here are the steps you’ll need to take.

Step 1: Purchase the right accounting software

The best accounting software is easy to use, runs reports in a snap, helps with ecommerce inventory management, and keeps you from making mistakes. When you’re doing ecommerce accounting, you’ll likely want to look for a double-entry accounting system.

Single-entry accounting involves writing down all of your business’s transactions (including revenues, expenses, payroll, and more) in a single ledger. It’s quick and easy, but single-entry doesn’t track assets or liabilities, is prone to mistakes, and doesn’t tell you much about the health of your business. It’s not great for businesses that carry inventory, either.

Double-entry accounting, on the other hand, is much more comprehensive. It allows you to track what you need for income statements, balance sheets, and cash flow statements. A double-entry system can also help you quickly identify how much you’re making and keep track of the overall health of your Amazon business.

Learn more: A Relatively Painless Guide to Double-Entry Accounting

Step 2: Find the best add-ons

When it comes to accounting software, you don’t have to rely on a one-size-fits-all solution—make it work for you. Software add-ons and automations can supplement your accounting system and make the overall bookkeeping process even easier. Some add-ons were even designed specifically for Amazon sellers!

Add-ons like A2X, for example, simplify the bookkeeping process by connecting to your Amazon Seller Central account. It automatically tracks your Amazon settlements and imports a data summary into your bookkeeping software on your behalf. A2X even works if you sell on another platform, like Shopify.

Since Amazon sellers can sell across state lines and even globally, tracking sales tax in different states is essential. Add-ons like TaxJar can automate sales tax tracking, making this confusing process a little easier to manage.

Step 3: Create your chart of accounts

Bookkeeping helps you track where your money comes from and where it’s going, but to keep your books organized, you’ll need to record transactions by category. First, you’ll need to decide what those categories will be. That’s where the chart of accounts comes in.

Your chart of accounts is a list of categories your business can use to differentiate your financial transactions. It offers an overview of every area of your business that spends or makes money.

High-level categories for charts of accounts are usually the same (assets, liabilities, equity, revenue, and expenses), but sub-categories will vary depending on your business and industry. A brick and mortar retail store, for example, might not have to account for shipping costs, but your Amazon business likely will.

Helpful resource: Chart of Accounts: A Simple Guide (With Examples)

Step 4: Prepare to track Cost of Goods Sold

Accounting for Cost of Goods Sold (or COGS) can be one of the trickiest aspects of ecommerce bookkeeping, but your COGS is essential to help you understand your true profits. Cost of Goods Sold is the total cost associated with making or acquiring any goods you sell.

To calculate COGS, you’ll want to include the cost you paid for an item or good and all costs to bring that item to market. These include purchase price, shipping, fees, tariff and duty payments, and more.

Your inventory management software add-on can make this process much easier by tracking the SKUs of your items and their associated costs and profits.

Step 5: Start recording entries

Once your system is set up, it’s time to put it to use.

Record the details of each financial transaction on a regular basis—you might consider scheduling a set time for bookkeeping to keep yourself on track. Remember, organization is the key to a fast, clean bookkeeping process every month.

Step 6: Figure out your storage

At tax time, you’ll need to prove your expenses are valid, so figuring out the proper storage for all of your financial records will be crucial.

The IRS accepts digital records, so don’t worry about hanging on to paper receipts forever. We recommend using a cloud-based system like Dropbox, Evernote, Google Drive, or Bench.

Step 7: Outsource when you’re ready

As time goes on, your business will hopefully continue to grow, and while profits may expand, your time won’t. If it starts to feel like your time and effort could be better spent on business activities more profitable than your weekly bookkeeping tasks, it’s time to outsource.

If and when you choose to outsource, you can hire a bookkeeper, an accountant, or a CPA to keep track of the numbers on your behalf. While bookkeepers and accountants sometimes do the same work, they have different skillsets and levels of expertise. A CPA, or certified professional accountant, will charge considerably more than a bookkeeper to do your books. Be sure to find the level of help you need for the current state of your business.

As a successful small business owner, you can’t do everything. If bookkeeping isn’t the best use of your time, let someone handle it for you. Bookkeeping services are even tax-deductible, making them an excellent business decision.