The Complete Guide to Amazon Accounting: How to Track and Analyze Sales, Costs and Cash Flow

amazon accounting

Without the visibility that up-to-date accounting provides, you won’t know whether you’re truly earning a profit or simply making sales. Oh, sales tax – the bane of many ecommerce sellers’ existence. Different states, different rules, and let’s not even get started on the Wayfair ruling. In particular, two tools that are critical for FBA sellers looking to scale their brand are inventory planning and cash flow forecasting. They go hand in hand, since you can’t successfully grow without stock. You will also have the business intelligence to review what products are selling profitably, which benefit from paid acquisition, and clearly know how much money is on hand to pay yourself at the end of each month.

Each bank and account type has different benefits and stipulations. “Every bank has slightly different rules when it comes to opening a business bank account, so be sure to call ahead so you understand exactly what information and documents the banker will need to open up your account,” says Allec. Registering your company can protect you from certain liabilities if things go wrong, and allows you to separate your business from personal income. As the business owner, you are wholly responsible for your legal and tax obligations. For this reason, it’s tempting to put off registering a company and paying taxes in the early days.

amazon accounting

Then, each month you subtract your COGS from your inventory to get a new inventory balance. The advice you receive from your accountant and bookkeeper will only be as good as the information you share with them about your business, growth objectives, and challenges. For example, if you only give them basic information, they are going to provide you with more general advice and best practices. Your chart of accounts is basically an index of all the categories you are going to use to organize your transactions. A cash flow forecast is a tool you can use to better plan for the future.

A Detailed Guide to Amazon Accounting for FBA Sellers

Some of the most popular cloud accounting software options are Quickbooks, Xero, and MYOB. For access to the most useful reporting features, choose either QuickBooks Online Plus or Advanced instead of the less-expensive Essentials or Simple Start. QuickBooks Online Plus allows you to set up class and location tracking, which will help you determine what segments of your business are most profitable. Need us in the books more frequently during peak season…a weekly cash flow statement? Want more meetings initially or when launching new products/sales channels?

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. Unlike the cash method, accrual accounting records revenue and expenses when they’re earned, not when they’re paid.

In addition, here are a few accounting terms that it is important to know, as they’ll be referenced a bit in this guide.

  1. And if you go with Wave Advisors, your monthly fee gets you access to a professional bookkeeper who can categorize transactions.
  2. Want to improve your cash flow and get more confident with your numbers?
  3. Cash basis accounting tracks transactions when cash changes hands, while accrual basis accounting records them when the transaction occurs.
  4. It’s like having a personal assistant that keeps your financial records in tip-top shape.

Then, either you have to fix them or you have to pay extra money to your accountant to clean up your VA’s work at tax time. 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. 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.

Want to make sure that you’re making the most of your FBA store finances? Here is our Amazon Accounting guide.

When you categorize inventory properly and keep an up-to-date balance sheet, you can make decisions based on the data instead of going off intuition. This is especially important at tax time to ensure you are reporting the right financial numbers. When you have a financial system and processes in place, you can make more informed, data-driven decisions about the trajectory of your business. You’ll be able to spot growth opportunities faster as well as get ahead of potential problems before they snowball.

amazon accounting

The last part is key since both accounting and bookkeeping are process-oriented. Cloud accounting software, like Xero, is great at automatically syncing all of your bank transactions to your feed. However, occasionally one of your bank feeds might have an outage or some transactions go unaccounted for. We recommend that most businesses create cash flow forecasts at least once a quarter. You may want to do this more often if your business is prone to volatility or you are in uncertain times – like a global recession and pandemic. Here are some initial questions to ask when you are evaluating cloud accounting software.

Tips for How to Do Bookkeeping for Amazon Sellers

Sometimes bookkeeping becomes too tedious and unwieldy of a task, requiring you to spend too much time on admin and not enough focusing on your business. Jeffrey Feingold, founder and managing shareholder of Tax Point Advisors, also points out that separating your finances helps make sure you don’t miss anything. It doesn’t have to take more than minutes of your time, but checking in every day or week will help you stay on top of your business’ movements and performance, notice any issues more quickly, and gain a feel for any patterns. Business plans help you align your goals with your budgets and actions.

We recommend using a cloud-based system like Dropbox, Evernote, Google Drive, or Bench. It’s best to check with your tax professional or your state’s tax website for more information. By adhering to specific processes, this will mitigate the likelihood of missing out on valuable entries which could save you at tax time. Know your real-time financial situation to make data-driven decisions and solve problems proactively instead of reactively. Online retail is fast and competitive, quick to change, and requires attention to detail. By managing your accounts in small, regular increments, you can save time whilst getting to know your business better.

Whether you think your business is ready for it or not, it’s wise to get registered. Manually recording COGS and inventory can be complicated and time consuming. Once again, we recommend using A2X – (yes, get emotional again).

Taking your Amazon accounting to the cloud

Instead, you need a uniform method of tracking financial transactions so that you can monitor how your business is doing over time. Get investor-grade financials that are clear and ready to present to investors or buyers. Whether you’re ready to sell in the next few months or a ways down the road, having clean, accurate accrual accounting is crucial to valuing your business correctly. Cash basis accounting tracks transactions when cash changes hands, while accrual basis accounting records them when the transaction occurs. Although most accounting programs include a sales tax module, these modules only calculate the sales tax due based on information entered by the user. They do not manage sales tax compliance or filing sales tax returns.

There are tons of nuances around payroll taxes, and it is one of the few things – along with student loans – that can be discharged even if you file bankruptcy. Unless you have an extremely tight budget or extensive financial experience, accounting and bookkeeping is usually one of the first things entrepreneurs outsource or delegate. As the owner, you are pulled in many directions from sales and marketing to sourcing new products, supply-chain management, customer service, and accounting and bookkeeping. This ensures your bookkeeping is up-to-date and you have money sitting in a bank account ready to pay your taxes on time.

When you work as a full-time employee, taxes are deducted from every paycheck. Whether all you need is your accounting done right or want guidance on planning for sales tax or understanding your product COGS, Seller Accountant has you covered on all fronts. Our account reconciliation process will help you check all transactions in your store. With accurate financial statements in your hands, you can easily see and match payments, determine extra commissions, know which orders remain unpaid, and more.

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. 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. Even with an optimized accounting stack (which we’ll explore next), it’s important to maintain your own visibility and understanding of your financials at all times. In the past, digital accounting systems were operated on servers and company computers, which required constant backups and software updates.